The number of households on local authority housing waiting lists has hit 1.77 million, official statistics showed today, up 100,000 on last year.

Town hall chiefs said pressure on councils was mounting as the credit crunch led to rapidly-spiralling repossession rates and called for more money to build homes.

"With the banks overstretching their credit facilities it could well mean that in the coming months that councils will have to help pick up the pieces as people end up on social housing waiting lists," Local Government Association housing spokesman Paul Bettison said.

"Even when the economic good times were rolling, councils saw ever-increased pressure on their social housing stock. Now that the credit crunch is upon the country it appears that many thousands more people will be looking to councils to provide them with a permanent home as they either find it impossible to get on the housing ladder, unable to afford private rented housing or see their home repossessed.

"Councils want to provide decent homes quickly for those who cannot afford to rent in the private sector or buy their first home but have been hamstrung by the lack of freedom to borrow off council assets in order to invest in building or buying new homes for those who need them most.

"Although house prices are falling, they are still beyond the reach of many. The slowdown in private sector house building will eventually affect the amount of affordable housing that is being built. This will mean fewer new social homes at a time when there will be more demand for them."

The Government's decision to allow councils to keep more rental income was a "step in the right direction" he said but more action was required.

Keeping all rents would provide an extra £450 million per year to invest in better homes, £1.5 billion could be ploughed in if councils could keep all the money from "right to buy" sales and more flexible government grants would allow building to continue through the downturn, the LGA said.

The statistics were published by the Department for Communities and Local Government which said the size of the waiting list was "not an indicator of absolute need".

"It is only useful as a broad indicator of housing demand in an area. Waiting lists may not be wholly accurate and not everyone on the waiting list will necessarily be in urgent housing need.

"It will also include those who consider social housing as their preferred choice, or one of a number of housing options, and those who decide to get on to the waiting list ladder before they need or want to move house - particularly where the priority system is heavily based on waiting time," the report noted.

Shadow housing minister Grant Shapps accused ministers of failing to meet pledges to build more affordable housing to deal with the growing demand.

"In the last 12 years this Labour government has spent a lot of time talking about providing affordable housing yet once again they've let down those most in need," he said.

"They've built less housing overall, less affordable housing and sat back while the social housing waiting list has exploded.

"When it comes to housing, this Government's record is appalling. Every MP from every party will have people coming into their surgeries begging for help with housing yet Gordon Brown just doesn't seem to understand the problem faced by millions of hard-pressed families."