Housing minister Grant Shapps has indicated broad approval for the approach but shadow minister Jack Dromey has said that the proposal to sell off expensive social housing is not the answer to solve the housing crisis.

Dromey said: “With housebuilding collapsing under this out of touch Government, this report rightly highlights the need to build many more homes. But proposals to sell off homes let at affordable rents to hard working families are not the answer.

“Councils and housing associations should make effective use of their housing stock but the government should not force them to arbitrarily sell-off social homes, breaking-up mixed communities and driving out hard-working families on low wages from whole neighbourhoods.

“Rather than seeking to divert attention from the catastrophic failure of their housing policies, this out of touch Government needs a change of direction and an alternative plan for jobs, homes and growth.”

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Dromey said the Government should start by taking urgent action with a bank bonus tax to fund 25,000 affordable homes to put unemployed building workers back to work, create jobs and apprenticeships for young people.

Policy Exchange’s report, Ending Expensive Social Tenancies claimed that sales of 28,500 properties would raise £4.5bn annually, which could be used to build 80,000 to 170,000 new social homes a year.

Policy Exchange claims the move could reduce the housing waiting list by up to 600,000 in five years.

However, David Orr, the National Housing Federation’s chief executive, said Policy Exchange’s idea was “fundamentally flawed”.

“It could effectively cleanse many towns of hard working people who simply can’t afford the high prices of buying or renting privately,” he warned.

“The report also ignores the fact that there is not the mortgage availability or market for people to buy these homes.”

Housing charity Shelter’s chief executive Campbell Robb said:

“There is a desperate shortage of affordable housing in this country, so we very much welcome contributions to the debate on how we can build the homes ordinary families so urgently need. However, this isn’t about numbers alone. We have to make sure that any new affordable housing is built where it’s needed most, and where the jobs are.”