Plans to cut the social housing budget will backfire and increase overall welfare bills, housing associations have warned.
Government plans to bring social housing rents closer to private sector ones will leave thousands of social home tenants "trapped" on benefits, the National Housing Federation said.
The federation, which represents housing associations, said that if rents for new tenants in the social housing sector are to be increased to around 80% of the amount people would be charged in the private sector, then tenants will have a "powerful disincentive" to work.
A spokesman for the federation said the sums charged to tenants will be so high that even if they could get a job, their earnings would disappear in rent repayments.
He said in areas where rents are already high, such as the London boroughs of Camden, Hackney and Haringey, many tenants moving into new social homes would face bills of £340 per week for a three-bedroom property and would have to earn at least £54,000 before they could get off housing benefit.
Many tenants paying the new rates will have their rents part or fully paid through housing benefit, he said.
Federation chief executive David Orr said: "The new funding model for low cost housing is predicated on high rents, instead of on an adequate capital budget, and this means that the freedom of housing associations to respond to housing need in each area will be cut from beneath their feet.
"Housing associations had wanted the flexibility to build a mix of homes at intermediate rents and social rents - but now they have an imposed solution which replaces that mix with high-cost, near-market prices across the board.
"Because it is based on near-market rents, the new funding model will trap thousands of tenants in welfare dependency because they will simply not be able to earn enough money to pay for their homes without the support of housing benefit - which means the benefit bill for new low-cost housing will go through the roof."
Social housing tenants will also face a "lottery" because some will pay traditional social rent levels, while others will have to pay near-market rates, the federation spokesman said.