By Claire West

The Government's new approach to housing will cut the overall number of social homes in England by 123,000 over the next four years - denying 300,000 people a social rented home, the National Housing Federation have warned.

Ministers announced in the spending review that they plan to deliver 155,000 new low cost homes - mostly to be built by housing associations - between April 2011 and March 2015.

Having cut the affordable housebuilding budget by 63% they plan to fund these new homes by massively increasing rents to tenants of up to 80% of the local market rate. As most social homes go to families, the loss of 123,000 social homes will mean that up to 307,000 people on waiting lists will be denied a social rented property.

The Federation says that the 'new deal' over housing does not allow housing associations to respond flexibly to local housing need, as they will be denied the freedom to set rents at an appropriate level and will be denied the opportunity to offer a mix of social rented and intermediate rented homes. Until now, affordable housebuilding has been funded through a combination of government grants and private finance generated by housing associations.

However the 63% cut to the housing budget means that, for the Government to deliver housing at scale, all tenants moving into newly built homes will have to be charged at the new, near-market rents, as well as one in four re-lets for tenants moving into existing social homes.

Under this new funding model, there would be a net loss of over 30,000 social rented homes a year - against a total stock of 1.88m social rented homes owned by housing associations in England. The average rent for a three-bedroom social rented home is currently £85 a week. But under the plans to allow increases in rents of up to 80% of the market rate, that figure could triple to a staggering £250 a week.

The significant increase in rents that will arise under the new system has prompted fears that poorer people will become more reliant than ever on housing benefit to pay for the higher rents. Most tenants who will be charged the higher rent rates will have the costs part or fully-paid for through housing benefit.

But the sums charged will be so high that if they do get a job much of their earnings will be eaten up through rent repayments. This is because every pound that claimants earn will be largely cancelled out by the amount of housing benefit being withdrawn.

As a result, the new intermediate rents will act as a powerful disincentive to work. In higher value areas throughout the country, including places such as Camden, Hackney and Haringey, many tenants moving into new social homes charged at the intermediate rent of up to £340 per week for a three bedroom property would have to earn at least £54,000 before they could get off housing benefit and be in a position where they could keep the bulk of their additional salary and find themselves better off in work.

The new model for the delivery of affordable housing comes as a result of the major reduction in the affordable housebuilding budget - with the amount of money provided down from £8.4bn over the previous three year spending period to £4.4bn over the next four years, starting in April 2011.

The new approach to affordable housing also creates a 'lottery' for social tenants, some of whom will access homes at the social rent levels, whereas others will have to pay rents at up to 80% market rate.

As with traditional social housing, tenants offered the new higher rent homes will be selected from those on the council waiting lists.

Federation chief executive David Orr said: "Ministers have missed a golden opportunity to tackle the country's chronic housing crisis because they have chosen to impose a once size fits all approach onto housing associations, which denies them the opportunity to build homes charging a range of rental prices.

The new funding model for low cost housing is predicated on high rents, instead of on an adequate capital budget, and this means that the freedom of housing associations to respond to housing need in each area will be cut from beneath their feet."

He added: "The Government has said that it will deliver 155,000 new affordable homes, but the sad reality is that because all the newly built homes will be let at near-market rents, and one in four relets of social homes will have to be let out at near-market rents, the total stock of social homes will substantially decline - with up to 307,000 being denied a social rented home."

"The real solution to the current controversy over housing benefit is to deliver more social housing at affordable prices. In the long term, this is cheaper for the state to deliver than bankrolling ever-increasing housing benefit payments.

"Ministers urgently need to rethink their plans and give housing associations the flexibility to respond to the growing housing crisis in the most effective manner possible."