Housing associations have come under fire for routinely refusing to house homeless people nominated for empty social housing properties, on the grounds that welfare cuts make the poorest prospective tenants too much of a financial risk.

A number of local authorities are concerned attempts to tackle homelessness are being undermined because housing associations are turning down the poorest prospective tenants in favour of those in work and with stronger credit ratings.

Widespread evidence of tension over the issue between councils and their local social landlords – many of which are charities set up in the late 1960s to house homeless families – emerged in this year’s annual homelessness monitor, published by the charity Crisis.

Jon Sparkes, the chief executive of Crisis, said: “At the moment, there is very little scrutiny of how housing associations fulfil their legal duties to help people experiencing homelessness. Moreover, some see homeless people as risky tenants – in part due to certain welfare reforms – and will only rent to them if they can pass certain financial checks, making the huge challenge of finding a home near impossible.”

The practice of turning away benefit-dependent tenants will be seized on by critics who argue that some housing associations have become too commercially focused and are losing touch with their founding social mission to house society’s poorest and most vulnerable people.

The monitor reports bleak predictions from English councils of rising homelessness. Nine out of 10 said the freeze on local housing allowance support meant the poorest claimants were increasingly “living on a knife edge” because they could not afford to pay their rent.

The monitor’s survey of local English local authorities reveals unease that some social housing providers routinely refuse to take on “higher risk and economically inactive” households who fail financial capability tests they are forced to undergo after being offered a tenancy by the council.

In some cases they failed because they had fallen foul of the government’s benefit cap, which drastically restricts a claimant’s income, putting them at high risk of running up arrears. Others failed because they were unable to pay one month’s rent in advance as a deposit.

One council respondent in the south of England pointed out the irony of the poorest tenants being turned down for the least expensive form of housing: “There have been cases where benefit-capped clients have failed such tests, meaning they are considered as not being able to afford the cheapest forms of housing available.”

Other councils said housing associations were now “a lot tougher” and some tenants were being refused housing offers they would once have been able to take. “This has not been an issue in the past but more recently we have seen nominations refused on the grounds of affordability,” said one Midlands-based respondent.

Quick guide Rough sleeping and homelessness in the UK Show Hide Is rough sleeping getting worse? The government claims rough sleeping in England fell for the first time in eight years in 2018, from 4,751 in 2017 to 4,677. But the body that oversees the quality of official statistics in the UK has said the number should not be trusted after 10% of councils changed their counting methods. Rough sleeping in London has hit a record high, with an 18% rise in 2018-19. The numbers of people sleeping rough across Scotland have also risen, with 2,682 people reported as having slept rough on at least one occasion. Shelter, whose figures include rough sleepers and people in temporary accommodation, estimate that overall around 320,000 people are homeless in Britain. What’s being done about rough sleeping? The government’s Homelessness Reduction Act 2017, which places new duties on state institutions to intervene earlier to prevent homelessness has been in force for more than a year, but two thirds of councils have warned they cannot afford to comply with it. In 2018, James Brokenshire, the housing secretary, announced a one-off £30m funding pot for immediate support for councils to tackle rough sleeping. How does the law treat rough sleepers? Rough sleeping and begging are illegal in ENgland and Wales under the Vagrancy Act 1824, which makes ‘wandering abroad and lodging in any barn or outhouse, or in any deserted or unoccupied building, or in the open air, or under a tent, or in any cart or wagon, and not giving a good account of himself or herself’ liable to a £1,000 fine. Leading homelessness charities, police and politicians have called on the government to scrap the law. Since 2014, councils have increasingly used public space protection orders to issue £100 fines. The number of homeless camps forcibly removed by councils across the UK has more than trebled in five years, figures show, prompting campaigners to warn that the rough sleeping crisis is out of control and has become an entrenched part of life in the country. Is austerity a factor in homelessness? A Labour party analysis has claimed that local government funding cuts are disproportionately hitting areas that have the highest numbers of deaths among homeless people. Nine of the 10 councils with the highest numbers of homeless deaths in England and Wales between 2013 and 2017 have had cuts of more than three times the national average of £254 for every household. What are the health impacts of rough sleeping? A study of more than 900 homeless patients at a specialist healthcare centre in the West Midlands found that they were 60 times more likely to visit A&E in a year than the general population in England. Homeless people were more likely to have a range of medical conditions than the general population. While only 0.9% of the general population are on the register for severe mental health problems, the proportion was more than seven times higher for homeless people, at 6.5%.

Just over 13% of homeless men have a substance dependence, compared with 4.3% of men in the general population. For women the figures were 16.5% and 1.9% respectively. In addition, more than a fifth of homeless people have an alcohol dependence, compared with 1.4% of the general population. Hepatitis C was also more prevalent among homeless people.

Sarah Marsh, Rajeev Syal and Patrick Greenfield

One unnamed council respondent in London claimed their local social landlord no longer met the needs of homeless customers because it was now “aimed at a profit motive rather than the social values”.

Nearly two-thirds of councils in England reported to the survey that they agreed with the statement: “Affordability/financial capability checks are making it more difficult for homeless households to access social tenancies in my area.”

Housing associations argue that chronic shortages of social housing, alongside rising levels of housing need – together with the rollout of universal credit, which has caused huge claimant rent arrears – mean that they have little option but to adopt more financially prudent letting policies if they are to balance their books.

Kate Henderson, the chief executive of the National Housing Federation, said: “Data shows that the same proportion of new housing association lettings are going to homeless people as they were 10 years ago. Housing associations have not lost their social purpose but in the face of drastic government cuts continue to ensure people in severe need and on the lowest incomes can access social housing.

“We share the deep concerns of Crisis and local authorities that social housing is under immense pressure and changes to welfare are making it hard for people to access it. The answer to this problem is more housing, a properly funded welfare system and properly funded support services.”

Others within the sector, however, argue that some associations have too eagerly embraced market values in recent years, concentrating on expanding their housing portfolios, developing properties for sale, making a financial surplus and paying big salaries to chief executives, rather than focusing on their social mission.

One housing association chief executive told the Guardian it was right that housing associations should not “blithely” rent to tenants but argued it was wrong for associations “to cherrypick tenants without any consideration with what happens to the people they turn down”.

Crisis said it was likely that a homeless household turned down for a social rented letting would stay in expensive and insecure temporary accommodation paid for by the council.