A U-turn will restore housing benefit for 18- to 21-year-olds, after charities protested that young people would be made homeless if they could not live with their parents.

The controversial policy – first unveiled by David Cameron back in 2014 – has been dropped to “reassure young people” they will receive the help with housing costs that they need.

Jobless under-22s no longer qualified for help with their rental costs, because it is “not acceptable for young people to go from school straight to benefits”, George Osborne said at the time. They should live at home instead.

Housing benefit is now being swallowed up in the new universal credit benefit. Regulations will be changed to give 18- to 21-year-olds the same rights to help as older people.

“As we roll out universal credit, we have always been clear we will make any necessary changes along the way,” said Esther McVey, the work and pensions secretary.

“This announcement today will reassure all young people that housing support is in place if they need it.”

The move was welcomed by the Child Poverty Action Group (CPAG), which said the Department for Work and Pensions had been forced to exempt the vast majority of 18- to 21-year-olds in any case.

Among the accepted reasons for escaping the crackdown were having a child, claiming disability benefits, being in care after the age of 18, or at risk of harm from living with their parents.

“This is brilliant news, as the statistics show that those young people claiming housing benefit are doing so because they don’t have a choice about whether to live at home,” said Alison Garnham, CPAG’s chief executive.

“In any case, most young people were being exempted and that puts the lie to the idea that young people are moving out of home as a lifestyle choice.”

Under the original plans, out-of-work 18- to-21-year-olds would also be unable to claim jobseeker’s allowance (JSA) and would instead receive a “youth allowance” – set at the same level as JSA.

To continue receiving the cash after six months looking for work, claimants would have to undertake daily community work or take an apprenticeship or traineeship.

The restriction on housing benefit – together with a reduction of the separate benefits cap – was intended to fund the creation of three million apprenticeships over five years.

But the DWP’s own statistics showed that no fewer than 96 per cent of those potentially affected were exempted in the first three months, from April to June last year.

Seyi Obakin, chief executive of the homelessness charity Centrepoint, said the policy “risked leaving very vulnerable young people with nowhere to live”.

“It was obvious from the first time the policy was floated in 2013 that at best it would be unworkable and, at worst, it could actually increase homelessness and reduce the willingness of landlords to rent to all young people,” he said.