Housing conditions in Britain are among the worst in Western Europe and cost the nation about £7bn a year by adding to the pressure on the NHS and other public services, according to a major study to be published today.

An alliance of housing experts warns that a lack of affordable, decent homes, cuts to local authority housing budgets and the Coalition Government's benefit reforms are creating "real hardship, misery and ill-health" for some of the country's most vulnerable people.

It warns that homelessness is on the rise and predicts the return of unscrupulous landlords like the infamous Peter Rachman, who exploited his London tenants in the 1950s and 1960s. Almost 4,000 people are sleeping rough on London's streets, an increase of 8 per cent since last year. About half of these are from the UK and the rest from a wide variety of other countries, notably Poland. There is little sign that the Mayor of London Boris Johnson's target of ending rough sleeping by next year will be met, the report says.

The Pro-Housing Alliance urges the Coalition to drop its plans to cut housing benefit, warning they will cause severe hardship arising from the mental and physical health problems associated with debt, poverty and enforced relocations and increase health risks from overcrowding.

Today's blueprint recommends the housing crisis should be tackled by the provision of 500,000 green and affordable houses and flats a year for the next seven years, including bringing empty homes back into use.

This proposal will fuel the debate over the Government's controversial plans to streamline planning laws. Environmental groups fear they will result in thousands of homes being built in the Green Belt. Yesterday the National Trust met Greg Clark, the Planning minister, to urge him to think again.

Ben Cowell, the trust's external affairs director, said: "The tension within government policy is between localism and economic growth and they come down clearly on the side of economic growth. So local people will be given the power to say yes, but not the power to say no."

But David Cameron told MPs yesterday: "House building is too low in this country, and it is a shocking statistic that the typical first-time buyer is now in their mid-30s. So we need change – we need more houses to be built."

Dr Stephen Battersby, president of the Chartered Institute of Environmental Health, which brought the housing groups together, said: "The lack of a coherent housing policy for the past 30 years has created an expensive housing market with a shortage of affordable housing.

"Too many people are paying too much for their accommodation relative to incomes. Too many properties pose a risk to health and safety, and the cost to the NHS of treating housing-related illness is way too high. Housing is fundamental to public health and well-being, and the Government needs a completely new way of thinking about housing." He said housing is one of the biggest casualties of the Government's spending cuts, with some of the most vulnerable members of society paying the heaviest price for a financial crisis brought on by bankers.

"I fear that we are also moving to a situation where unscrupulous landlords proliferate as better landlords move up-market. Councils will not be in a position to regulate this effectively. This is not a problem that is going to disappear conveniently," he said.

Today's report says the crisis is most acute in London, where housing costs are about 50 per cent greater and childcare costs much higher than nationally. As a result, plans by Iain Duncan Smith, the Work and Pensions Secretary, to bring in a universal credit in 2013 will be "especially damaging" in London. The spending power of a lone parent with two children working six hours a week will be £8,434 in London compared to £9,482 nationally.

There is expected to be an increase of between 30,000 and 34,000 households in the capital every year for the next 25 years, a high proportion of which will be single-person households.