Thousands of new council tenants would be able to rent their houses for only six months under radical proposals to overhaul social housing.

A Government-commissioned report, published today, will say that many council houses and flats are occupied by relatively well-off families who could easily find alternative private sector accommodation. All existing tenants should keep their right to stay in their homes, but the report recommends “more diverse offers” including short-term contracts of six months or a year.

It concludes that a growing number of people need social housing only in an emergency, for example after marital breakdown. The report is by John Hills, Professor of Social Policy at the London School of Economics, and was commissioned by Ruth Kelly, Secretary of State for Communities.

Social housing has become a big political headache for the Government: waiting lists are up 500,000 in the past decade to 1.5 million despite billions of pounds of investment.

The Hills report calls for a significant expansion of social housing, far higher than the 30,000 new homes each year under current government plans.

Jon Cruddas, a candidate for the Labour deputy leadership, has said that a lack of social housing has fed political extremism. In areas of high immigration, long-standing residents believe that new arrivals to Britain receive preferential treatment because their needs are deemed greater than those of local families.

The British National Party has been performing strongly in council by-elections in areas where housing is an issue.