Plans to house London's poor in Stoke attacked as 'social cleansing'

London's housing crisis is about to "burst wide open" according to experts, who say the actions of the Olympic borough of Newham, which tried to rehouse 500 of its poorest families hundreds of miles away in Stoke, are just the beginning.

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Political sides lined up to defend or attack the Government yesterday over whether cuts to benefits and continued shortages in affordable housing were leading to "social cleansing" across the capital, as the news of Newham's plans emerged.

At the heart of the argument is mounting concern over the ability of Britain's largest city to build enough new houses at a time of stagnant economic growth, painful cuts and a continually expanding population.

In the first indication that London's housing crisis is threatening to spill out across Britain, Newham Council admitted yesterday that had been forced to try and look for accommodation hundreds of miles way.

Council chiefs have written to 1,179 housing associations asking whether they would be prepared to take 500 families who can no longer stay in the Olympic borough because their rent is more expensive than the cap which the Government recently placed on housing benefit.

The revelation has led to angry denials from housing minister Grant Shapps who accused the Labour-led council of "playing politics" in the run up to London's mayoral election. He insisted there was no need for London boroughs to move people out of the capital, and said there were plenty of private properties available. However critics hit back saying less than half of private landlords were willing to take tenants who rely on housing benefits to pay their rent.

Historically London has struggled to keep up with the demand for accommodation, leading to inflated rents and significant overcrowding.

In recent months, the construction of new affordable housing in London has virtually tailed off altogether. The latest figures from the Homes and Communities Agency show that just 56 new affordable projects were started in the six months between April and September 2011 compared to 15,888 for the previous 12 months.

The lack of housing has since been exacerbated by caps to housing benefit which were brought in at the start of the year. The amount of money now available has been set at £250 per week for a one-bedroom property, £290 for two bedrooms, £340 for three bedrooms and £400 for four bedrooms. The maximum anyone can receive in a year is £21,000.

The Chartered Institute of Housing estimates that as many as 800,000 homes across Britain will become unaffordable for low-income families now that the local housing allowance has been capped. London Councils, a think tank that promotes the interests of the capital's 33 councils, warned that 82,000 household were at risk of losing their homes because of the changes.

Downing Street maintains it is unfair to allow those who receive housing benefits to stay in central London when those who pay their own way are pushed out. But critics say the new measures are a way of clearing poorer families out of central London.

As a result of the benefit cap, comparatively expensive inner city boroughs such as Kensington and Chelsea, Westminster and Camden are under pressure to move poorer tenants into neighbouring boroughs where rents are cheaper. That has put pressure on outer city boroughs such as Waltham Forest, Newham and Dagenham and Barking, who already have large waiting lists for social housing and are areas of intense social deprivation.

The knock-on effect so far has largely been contained to London but there is evidence, not just in the case of Newham, to suggest the crisis is making ripples outside the capital. The Independent has learned of cases where families in boroughs such as Hounslow and Westminster have been told they may have to move to towns in Staffordshire and Kent respectively. Waltham Forest also admitted it housed 14 families in Luton, five in Margate, and had recently acquired units in Walsall to relocate people to. Meanwhile, Labour councillors within Tory-led Westminster Council say they have seen proposals to move poor tenants to Nottingham and Derby.

The Labour MP John McDonnell said that he had been contacted by families living in the Tory-led Hillingdon borough who had been told to move to Milton Keynes, more than 50 miles away.

Yesterday Westminster Council insisted only 13 families had been rehoused outside of London. Hounslow said it had moved people into neighbouring boroughs but had no plans to relocate people beyond the capital, while Hillingdon denied Mr McDonnel's claims.

Observers say the full effects of the benefit cap have yet to be felt because families are assessed only on the one year anniversary of their previous claim. If their rent is above the cap limit they are given an additional period of protection to find somewhere else to live. Karen Buck, Labour MP for Westminster north said that unless rents dropped, more boroughs would be forced to move people out.

Case study: Fruitless search for family home on a budget

Stacey Loftus, 37, lives in Hackney Wick, east London, with her four children. After a nine-month notice period, she was told in February that her housing benefit would be capped, but has been unable to find another property within her budget.

"I live in a four-bedroom house, but ever since I heard the housing benefit cap was coming in I've been looking for something smaller – but I haven't been able to find anything. Estate agents have been looking, and the council, but no one's had any success. It's impossible to find a three-bedroom house for £350-a-week throughout Hackney. I wouldn't have a problem moving to a two-bed. My kids are settled in school, and I don't want to leave the area."