In a rare interview, Mr Rouse told the Advertiser that capping benefits at £500 per week will affect 800 families and deepen the borough's housing "crisis".
The number of households living in emergency housing in Croydon has risen six-fold in the last four years, from 61 in 2008 to 441 at the end of 2012.
Of greatest concern are the 170 homeless families who have been in shared bed and breakfast accommodation longer than the six-week government guideline.
The stark figures have led Mr Rouse to make addressing homelessness the council's main priority.
"Housing is our number one problem," he told the Advertiser.
"There is a housing crisis in Croydon and we're not going to try and pretend there isn't.
"For a whole set of circumstances, Croydon has become a hotspot in terms of a lack of housing availability.
"Unless there is a very rapid economic recovery, which leads to a significant fall in joblessness, then the likelihood is that homeless numbers are going to get worse before they get better."
Mr Rouse, who has created a housing supply task force to source more homes, based his bleak prediction on the latest change to the benefit system, which will see overall benefits capped at £500 per household, per week.
The Government says the new system will be fairer for working families, but critics have branded the cap "immoral" and an attempt to "demonise the jobless".
Croydon has been chosen as one of only four authorities in the country to trial the changes from April, alongside Bromley, Haringey and Enfield. The cap will be rolled out across the rest of the country in the summer.
There was no consultation with Croydon Council prior to the announcement, and it is now taking legal advice to discover whether the decision can be challenged.
Mr Rouse continued: "Is it fair for a Croydon household to be treated differently from a Sutton or a Lambeth household, even if it is only for a period of time?
"My second concern is whether it will make it even more difficult for us to access temporary accommodation, if landlords believe they could be affected by the benefit cap when others aren't in the same situation.
"So we are talking with the three other boroughs about how we might to relay our concerns back to the Government."
Mr Rouse added: "Clearly they wanted to test on areas where there are a significant numbers of people affected by the cap. Why we were chosen over other London boroughs I don't know."
Council projections show the cap, which roughly equates to £26,000 a year, is likely to affect 800 families in Croydon, although it is harder to tell how many will be a risk of becoming homeless.
"We are still trying to work out what the impact will be but I don't think there's any doubt [the cap] will increase homelessness," said Mr Rouse.
"Now we are trying to contact them, because we need to talk to them now about how they are going to cope.
"If there are any households reading the article who think they are likely to be affected then contact us now."
Mr Rouse believes changes to housing benefit, introduced last April, have also led to increased homelessness applications, because families have been priced out of the private sector.
Estimates show the reduction in Local Housing Allowance (LHA) to the 30th rather than 50th percentile would mean the council had to find homes for an extra 530 families, and left 300 single people facing eviction. It was also predicted that 550 families would move to the borough from more expensive areas of London.
Mr Rouse said: "The benefits cap will only add to the pressure we are under."
Though other local authorities are experiencing housing pressure, the issue is particularly acute in Croydon. The borough's council housing stock stands at 11,000, and although 40 new homes are planned this year, demand far outstrips supply. Mr Rouse said: "Our borough struggles because the number of units which become available from our housing stock in any given month is only 50 to 75 units. "If you think about our waiting list then you can see that people are going to be waiting a very long time for access to that accommodation." With its own stock over-subscribed, Croydon is reliant on the private sector, where supply is also dwindling due to market immobility and landlords being reluctant to take social tenants. In 2011 the council found 393 rental properties, but last year just 31. Mr Rouse said: "The private sector has been saying a number of things. One is that they don't need to rent to people on benefits, that there's such a demand for their property, why should they take the risk? "That's more of a perception of risk than a reality but that's what they say. Second, rents are going up so people on low incomes or on benefits are going to struggle to afford them." The shortage of available housing has contributed to a significant rise in homelessness. Croydon council received more than 2,200 homelessness applications in the past 12 months and placed 1,470 households in temporary accommodation, of which record numbers are in emergency housing such as hostels and bed and breakfasts. The social and economic causes behind the figures are also on the increase. There has been a 43 per cent jump in applications due to rent arrears and 53 per cent rise in homelessness caused by family breakdown, as well as an increase in people fleeing domestic violence. With no viable alternatives, the council has little choice but to place many of these vulnerable families in shared B&Bs. Government guidelines say such emergency accommodation should only be used as a last resort and for no more than six weeks, though 170 have been there longer, leading one Government minister to claim the council was breaking the law. Mr Rouse admits the authority is 'vulnerable' to legal action from families in this situation, but says he is doing all he can to reduce the numbers. He said: "The regulations say they should not be there for more than six weeks, yet there is not enough accommodation to move them on to. They are coming in the front door faster than we can get them into alternative housing. "Do we want families in shared accommodation? The answer is no. Do we think it's the best environment for children to grow up in? No." To tackle the problems, the council has created a housing supply task force. As well as existing bond schemes, it will offer landlords greater incentives, including increasing the amount paid up front for properties. A new initiative, to be introduced later this year, will see owners of properties left empty for more than two years charged a premium on their council tax. In the short term, Mr Rouse's focus will be on reducing long term placements in B&Bs, by sourcing more accommodation outside London, including placements across East and South East England. Croydon housing chief Dudley Mead was 'aghast' at news that Croydon will be one of only four areas to trial the Government's new housing benefit cap in April. Mr Mead, cabinet member for housing, said the council, together with Bromley and Enfield, was now seeking legal advice on whether the decision can be challenged. The three councils, together with Haringey, are angry there was no consultation with them before the Department for Work and Pensions (DWP) made the announcement shortly before Christmas. The intention, the DWP says, is that the cap will be in place across the country by the summer. There are already concerns that the cap will increase pressure on scare housing provision in areas like Croydon, but Cllr Mead believes the borough could be hit even harder by being forced to pave the way for the new system. "We have a housing crisis going on and what we are trying to do is persuade private landlords to let their properties to Croydon residents to help ease the problem," he said. He fears that if these landlords knew that Croydon was one of the areas in which the benefits cap was operating initially, meaning tenants may not be able to afford rents, 'they won't come anywhere near us'. He added: "The DWP is exacerbating the crisis."
- If you will be affected by the benefits cap call the council's hotline on 020 8726 7000 or visit www.croydon.gov.uk/benefitchanges
