OXFORD could invest £5m in a homeless housing scheme pioneered in London to combat a crisis in temporary accommodation.

Senior councillors at Oxford City Council will tonight be asked to back proposals to join the Real Lettings scheme, which would buy about 50 properties to house people and families with connections to the city.

It comes as the local authority warned its ability to help the “disproportionately large” homeless population was “severely limited” in the face of a chronic housing shortage.

This has been worsened by private landlords shunning tenants who receive housing benefit in favour of higher market rents, the authority said.

According to figures covering April 2014 to March this year, local housing allowance provided people renting two-bedroom properties in the private sector with £834 per month on average.

However, the average rent for a two-bed property stood at £1,091, meaning that families were left short.

Scott Seamons, city council executive board member for housing, said: “With rising rents and cuts to in-work benefits, it is becoming harder and harder to find property for families who fall into homelessness in Oxford.

“We don’t want a city where those on low or even middle incomes can’t afford to live.

“Investing in a property fund will allow us to house more [homeless] families, saving money in temporary accommodation costs.”

He added that there were no plans to invest in properties outside of Oxfordshire: “That simply wouldn’t solve our problem.”

Lesley Dewhurst, chief executive of Oxford Homeless Pathways, said finding affordable housing was vital to helping people overcome issues that made them homeless.

She said: “Often we can’t get people out of homelessness services because there is nowhere for them to go in Oxford.”

In a report to the city council’s executive board, the heads of housing and financial services told councillors that the 254 beds provided in the city to homeless people were running at “close to 100 per cent occupancy rate”.

They said that in May the council had 113 households in temporary accommodation, with 938 people receiving financial support in the private rent sector under the council’s Home Choice scheme.

Last year the council was forced to use £265,000 of its earmarked reserves after it spent more than its £3.513m budget for homelessness.

The overspend was in part fuelled by a rising bill for bed and breakfast accommodation, which can cost £13,780 per small household each year. Senior figures have warned it could cause reserves to run out in less then two-and-a-half years.

The new scheme could see the city council sign up as a limited partner, with leading homelessness charity St Mungo’s Broadway managing the properties.