The cost of a new law to further criminalise squatting could run to almost 20 times official estimates, wiping out government legal aid budget savings, according to the findings of a newly published report.

The study, commissioned by Squatters' Action for Secure Homes (Squash) and supported by academics and politicians including a former Liberal Democrat home affairs spokesperson, finds that the Ministry of Justice's new law fails to account for extra spending on housing benefit squatters will claim once they are evicted.

The Can We Afford to Criminalise Squatting? report, published on Friday, finds the total costs of the law – clause 136 in the Legal Aid and Punishment of Offenders Bill (Lapso) – could run to between £316.2m and £790.4m over five years, depending on the number of squatters in England and Wales. This compares with the £350m in savings the MoJ hopes to make by cutting the legal aid budget.

Squatting in someone's home is already a criminal offence but the MoJ hopes to extend the law to cover vacant residential buildings that have no tenant.

Squash says squatters in residential buildings are saving the government some £36m to 90m a year in housing benefit as they cannot claim while occupying a property, but that the MoJ has failed to factor these extra claims into their cost forecasts for the new law, which it estimates will be between £1m and 9m a year.

"The government has seriously underestimated the financial implications of clause 136 by failing to quantify some of the key and inevitable costs of criminalisation, such as increased takeup of housing benefit and homelessness rehabilitation. Using government data … we calculate that the true cost to the taxpayer of criminalising squatting in England and Wales could reach a shocking £790m over five years," the report says.

The report also points out that the government has assumed landlords will seek to evict squatters in the same numbers they do now after the bill has passed, even though the costs for eviction will be passed on to the police once it becomes a criminal offence.

"The costs to the criminal justice system of full prosecution of squatters in residential properties would be £8.6m-£21.4m, a bill that would recur annually if criminalisation had little deterrent effect," Squash says.

During consultation for the law, the Law Society and Criminal Bar Association said they were strongly opposed to new trespass laws, while the Association of Chief Police Officers said the current law was "broadly in the right place" for them to be able to tackle the worst cases of squatting.

Baroness Sue Miller, a former Lib Dem home affairs and environment spokeswoman for the party, tabled an amendment on Thursday that attempted to strike the squatting clause from the bill.

She said: "This pernicious bit of legislation is all about saying something is being done to protect homeowners – when in fact they are already fully protected against squatters by both criminal and civil law. Of course I believe a person's home should be sacrosanct, and my amendments certainly do not undermine the protection people rightly expect against having their homes squatted.

"The government should spend their energy and resources actually tackling homelessness. Their proposal to criminalise the homeless who seek shelter in an empty building comes with a hefty price tag running into millions, which is ironic when this bill is all about trying to make savings. The homeless will suffer further, homeowners will get no more protection than they have now and derelict empty properties will stay that way."

Professor Danny Dorling, from the University of Sheffield, said the report's conclusions demonstrated how ideologically driven the changes on squatting were.

"This report demonstrates how easy it is for government to propose ideologically driven changes to the law without a good idea of how much the huge cost would be," he said. "This is not just the cost in raising aggregate human misery, but also in direct extra financial penalties to the exchequer. If considered carefully, spending so much government money to help what are mostly very affluent organisations keep buildings empty is not justifiable."

A MoJ spokesman said the department did not recognise the figures but it was "determined to stamp out this distressing practice which causes property owners untold misery and costs them thousands of pounds in eviction, repair and cleanup costs".

"We believe this is simply wrong, which is why we have introduced a new offence of squatting in a residential building that is currently being debated in parliament," he added. "In our impact assessment we projected a cost to the criminal justice system of around £5m a year and noted there might also be an impact on local authorities and other bodies. We will work with other departments to monitor the impact when the offence comes into force."