The body, which represents 350 councils across England and Wales, wants the Government to use this week’s Budget to free local authorities from limits on how much they can borrow to build new homes.
The Local Government Association (LGA) said that just 6,554 social rented homes were built last year, with the number of affordable homes slumping by 52 per cent to a 24-year low in 2015/16.
The number of households councils have had to place in temporary accommodation has increased by half since 2010 due to the decline in affordable dwellings, the LGA said.
It said almost 75,000 households are now living in temporary accommodation, including bed and breakfasts, hostels and private rented accommodation.
The LGA estimated councils have been forced to spend £2.6 billion to house people in temporary accommodation in the past three years.
Lord Porter, LGA chairman, said: “Homelessness is spreading across all areas of the country.
“Funding pressures are combining with a lack of affordable housing and private sector rents rising above household incomes to increase homelessness.
“It is also leaving many councils struggling to find suitable accommodation for those in need, particularly those who are young, vulnerable or with families.
“With councils continuing to face huge financial pressures, it is unsustainable for them to have to spend £2 million a day to house vulnerable people at the sharp end of our housing crisis.
“Councils would much rather invest this scarce resource in building new affordable homes and preventing homelessness happening in the first place.
“A renaissance in house building by councils and a plan to reduce the squeeze on household incomes are both needed if we are to stand any chance of solving our housing crisis, reducing homelessness and the use of temporary accommodation, and sustainably reducing the housing benefit bill.
“Communities across the country need a new deal with the Chancellor that gives councils the ability to borrow to invest in housing and to keep 100 per cent of the receipts from any homes they sell to replace them and reinvest in building more of the genuine affordable homes they desperately need.”
The LGA is also calling for a temporary lifting of the Local Housing Allowance freeze to help ensure the provision of accommodation for vulnerable families.
Last week, think tank The Economics Foundation said their research showed the ‘fire sale’ of publicly-owned land is making the housing crisis worse, with affordable homes making up just one-in-five of those built on the sites. The analysis found that 20 per cent of new homes would be classed as affordable, with some developments made up entirely of luxury properties.