A failure to build new council houses is forcing residents to accept "latter-day Rachmans" as private landlords or take out mortgages they cannot afford, Midland MPs have warned.
They urged Ministers to adopt a "level playing field" policy for council homes, allowing authorities to build more properties.
And they called for an end to the system of subsidies which means some of the rent collected from Midland tenants is sent to London councils instead of being spent locally.
The concerns were raised in a Commons debate led by MP Ken Purchase (Lab Wolver-hampton North East).
He said: "Many councils more than meet their costs and the Government then remove the surplus in order to meet the costs of those councils that have deficits.
"The reason some councils produce deficits on their rent account is simply that their tenants are too poor. So we have the disgraceful spectacle of the less well-off subsidising the least well-off in our society."
In 1979, there were more than five million homes owned and managed by local authorities in Britain, he said. Now there are fewer than half that number.
"Many people have been pushed into buying houses that they can scarcely afford and, in years to come, we shall see that such marginally viable owner-occupation will produce levels of disrepair that will result in the need for a massive injection of funds, probably from the public purse and the taxpayer."
Many families were forced to rent homes from private landlords, but these were subsidised by the taxpayer because the tenants received housing benefit, he said.
"That additional subsidy is fast becoming worth £1 billion a year, and it is going straight into the pockets of private landlords, some no better than latter-day Rachmans. At least, with housing benefit paid to council tenants, taxpayers' money remains in the public purse."
Birmingham MP Lynne Jones (Lab Selly Oak) warned: "We now have a crisis, not only because of the condition of homes, but because of home-lessness: hundreds of families are now in temporary accommodation."
And Joan Walley (Lab Stone North) said all the MPs wanted to see was a "level playing field" for council housing.
Local Government Minister Jim Fitzpatrick said the Government had inherited "a staggering £19 billion backlog of repairs"
He added: "I am not in a position to change policy this morning. Nobody would expect that."