A shortage of private accommodation in London could mean homeless people are moved as far away as Hull, where rents are cheaper, housing charities are warning. They fear there will be an exodus from the capital of people at the bottom of the housing ladder as the coalition's Localism Act, which comes into force this spring, empowers local authorities to place homeless people in private rented accommodation.

At least one London council, Croydon, is seeking to rent private accommodation in Hull and several other Yorkshire towns. It has also rented property in St Leonards on Sea on the Sussex coast. Other councils are predicted to follow suit, according to housing experts.

Until the act comes into force, homeless people can stay in temporary housing until social housing becomes available. However, this choice is being removed at a critical time. The local housing allowance, money paid by local authorities to those on housing benefit in the private rented sector, has been cut. In addition, the mortgage drought has meant many people trying to get on to the housing ladder have been forced into the rental sector, inflating rents.

The result, according to housing experts, is that the private sector is becoming increasingly unaffordable for local authorities, resulting in a ripple effect as homeless people and those on benefits are rehoused in areas where rents are cheaper.

Shelter, the housing charity, said new regulations, to be published soon, would set out councils' obligations to homeless people placed in private rented accommodation. Shelter expressed concerns that the regulations would allow councils to house homeless people outside their boroughs. It said Croydon council was considering moving some people in temporary accommodation to Hull, 230 miles away. "The fact that councils may be considering making use of these powers to offer people homes away from their local areas – potentially having to uproot families from schools, communities and jobs – is testament to the scale of our housing crisis," Campbell Robb, the chief executive of Shelter, said.

"This upheaval could have a devastating impact on children's education and a family's wellbeing. Taking families away from their support networks at the time when they need them most is not going to help them back on their feet."

Southwark council is predicting a rise in homelessness this year after the number of people on its housing waiting list grew for the first time in five years. Jon Dalton, a housing manager for Harrow council, said it had already helped more than a dozen households to move out of London. Dalton said: "Because of the welfare reforms, many non-working households that are dependent on benefits will not be able to afford to live in the local private rented sector."

Grant Shapps, the housing minister, said there was an urgent need to tackle the rising cost of welfare. "Under Labour, housing benefit soared out of control and rents for those on housing benefit rose by far more than market rents," he said. "As a result, the Labour government ended up spending £192bn a year of taxpayers' money on welfare payments, which was more than the combined spending on defence, education and health. We need welfare reform to tackle Labour's budget deficit, and a series of measures to tackle that soaring benefits bill."

A £190m pot of additional funding has been made available to help local authorities provide support for families on benefits in the aftermath of the reforms, but councils fear this will be dwarfed by the cost of accommodation in the private sector. A survey by Environmental Health News, the in-house magazine for environmental health officers, found that London councils were anticipating having to place more homeless people into private rented accommodation. Nearly half warned they would not be able to find enough suitable accommodation because there was too much competition for affordable lets.

Islington council said it had "become significantly harder to procure properties in the private rented sector this year". Lewisham, Barking, Dagenham and Brent also expressed difficulties.

Ian Dick, an environmental health officer in London, told the magazine that homeless people would end up being moved to outer London and then potentially to "declining northern towns". "Families will go from Kensington and Chelsea to the outer London fringes, and once they get fuller they will start pushing them out to areas where there is housing," Dick said.

"Not enough thought has been given to the impact of the welfare reforms on outer London boroughs like Sutton," said Ruth Dombey, deputy leader of Sutton council. "We fear there's going to be an exodus to the suburbs, with families being forced out of central London and into more affordable areas of Greater London."