In a back alley behind a shop on Romford Road, in east London, a family of four sleep in one bed in a tiny room – a sliver of a property without planning permission to be a family residence. The boiler is broken, and the baby and toddler are cold, but no one knows who the landlord is. So Newham council officers step in to fix the boiler, cheaper than rehousing in this crisis time.

Newham, the first authority to try to licence all its private landlords, is prosecuting 134 of the worst. So far 40% of privately rented properties have been identified as "category 1 hazards". The £500 licence doesn't cover the scheme's cost: perversely, the council can't keep fines imposed on landlords.

Last month an absentee landlord who failed to register was in court for putting four families on four floors, the basement family sharing its kitchen with the rest, although the ceiling had fallen in and there had been no electricity for eight weeks. With rent at £350 a month per room, his £6,500 fine was negligible. Another landlord with 50 properties is a serial violent harasser of his tenants. Elsewhere, as more landlords evict those on housing benefits, the third of Britain's children in private rented homes are at constant risk of removal from their neighbourhood and school.

This realm of squalor and exploitation seemed all but abolished by the 1970s after decades of government building under Attlee, Macmillan and Wilson. But Rachmanism is back. The Economist reports on the shrinking size of dwellings as landlords subdivide houses, turn living rooms into bedrooms and put beds in garden sheds – the old Parker-Morris size standard long gone.

This government inherited an acute housing shortage: Labour and Tory governments neither built nor intervened in a market failure where private developers didn't build despite astronomic price booms. But David Cameron's policies seem crafted to turn a crisis into a catastrophe, both for aspiring owners and the most vulnerable. His new Right to Buy gives tenants a discount of up to 70%, causing a stampede. Newham's mayor, Sir Robin Wales, calls it a "disaster". A Newham solicitor tells me she has just helped a tenant buy a council house for £45,000: they can let it out for £700 a month and sell it in five years for four times as much. Over a third of ex-council homes are buy-to-let, some multi-occupied, damaging estates; and rents are on average £230 up on the old rents charged by councils – a bill picked up by housing benefit. What sense does that make? The dwindling number of council tenants may hit the jackpot, but the idea of solid estates with mixed communities has gone.

When I lived in a council flat researching a book, I had many offers from sharp estate agents to buy my flat and give me a small share of the proceeds: people in debt often abandon secure tenancies to these sharks. So why doesn't the Taxpayers' Alliance attack the wasted money spent on building council housing, only for the rent that pays for it to be lost when the asset is sold at a knockdown price?

As council housing retreats, look at Eric Pickles's redefinition of "affordable" housing at 80% of soaring market rents, out of reach of low-paid families, while halving the social housing budget. Grant Shapps, when housing minister, promised every council home sold would be replaced. Had that been policy from Thatcher's day, we would have 2 million more council homes. Under Shapps nearly 11,000 were sold, but only 1,660 built – often the better homes swapped for small flats. Westminster has sold 66 homes since 2010 and built none.

The injustice of this government's grants defies belief: Newham gets £800,000 to help with homelessness, Westminster £8m. Councils have no incentive to build when new homes can be sold in five years at knockdown rates, long before rents earn back the capital. The chief executive of Riverside Housing Association says cuts in housing benefit have caused them to cancel 500 new homes.

Now add in the bedroom tax, driving out 660,000 existing stable tenants (a savagery so mishandled that 40,000 have been illegally charged and require rebates). What redress for the evicted? Worse still, Iain Duncan Smith's universal credit stops landlords being paid directly from housing benefit, so landlords are refusing to take tenants on benefits. Now they will abolish housing benefit for under-25s: two-thirds in receipt are parents, one in 10 are sick or disabled, many have no parents to return to. Rent arrears are rising: people in low-paid temporary work quickly build up debts as housing benefit fails to catch up.

Adding petrol to the fire, George Osborne's Help to Buy – or Help to Buy Votes – pumps up pre-election house prices, sending ownership yet further out of reach for the young.

Labour's new housing minister, Emma Reynolds, made her first big speech yesterday, mostly about helping small builders – but as with her recent Inside Housing interview, she can't say much until the two Eds decide what to do. Ed Miliband made a bold statement – a pledge to match Attlee with 200,000 homes a year, to repeal the hated bedroom tax and to set up a national register of private landlords. But where's the follow-up policy, the urgency, the outrage? Sir Michael Lyons's housing commission will report in due course: let's hope he takes evidence from Newham's mayor.

Here's what Sir Robin Wales would do: only sell council houses at market price and use all the money for new homes; make councils enforce the law against landlords, paid for by keeping court fines. Wales wants a living wage, not a minimum wage, and the right to enforce it locally: "Even if it lost some jobs, it would transform lives in Newham and save benefits." But above all, he wants to borrow to build. "I'd make money. When was there ever a time it was not worth building? The value always rises."

He would control rents so they rose only by inflation – "or raise the tax on rental profits. Don't make it so attractive." His indignation boils over at the announcement last week by Danny Alexander, the Treasury chief secretary, that he would force the selling off of public land. "Never sell. The Duke of Westminster never sells a London property, for good reason. Nor should we." Prudent borrowing would let him build, at a profit over time.

We wait for Labour's new "towns and garden cities" plan, as Cameron bans his party from naming any site before the election, afraid of his Nimbys. Labour needs to stop fearing the B word and start talking about a national mortgage – borrowing that voters do understand.

Give up puzzling over why this government inflames the housing crisis. Electorally, what happens to the bottom half is not its concern, as its voters own homes already. But on this it miscalculates – as housing worries parents and grandparents too.