A report by the Welsh Affairs Committee says Wales is affected by the under-occupation legislation, the so-called 'bedroom tax', more than anywhere else in the UK. Housing associations and homeless shelters are calling for more homes to be built.
Wales needs to see a big increase in the building of smaller homes, according to a cross-party group of MPs.
It follows a warning that more people here are affected by the cut in housing benefits that critics call the 'bedroom tax' than in any other part of the UK.
The Welsh Affairs committee says those affected will find it hard to downsize because of the lack of smaller properties in Wales.
Sandra Charlesworth from Rhondda Cynon Taf says she will lose a quarter of her housing benefit, after her husband died, meaning she now lives alone.
She doesn't want to move somewhere smaller though, as her home is "my life, my heart, this is where my children come to - our life together meant everything, and it all happened in our home, my home is here."
The UK Government says "the taxpayer can no longer afford to cover the costs of spare bedrooms" for social housing tenants, but it has made extra money available to support vulnerable people affected by the spare room subsidy, commonly known as the bedroom tax.
The way the system works is that tenants classed as having one spare bedroom lose 14 per cent of their housing benefit, while those with two or more spare bedrooms lose 25 per cent.
It is targeted at reducing under-occupancy of social housing.
There are 90,000 households on council waiting lists in Wales.
The UK Government points out that claimants can decide whether to pay the difference, or move to smaller accommodation - and councils have discretion over whether disabled children should be allocated their own bedrooms.
Housing benefit continues to pay the vast majority of people's rent, but the taxpayer can no longer afford to cover the costs of spare bedrooms.
However, we have made £6.2m available to Welsh councils to support vulnerable people, with an additional £880,000 available to help those in rural parts of Wales.
The organisation which represents Wales' 22 local authorities, the Welsh Local Government Association, says councils here have long argued that the UK Government's reform of the housing benefit system will have a disproportionate impact in Wales.
The WLGA says:
There are 250,000 people in Wales currently getting some form of housing benefit
The under-occupancy penalty, commonly called the 'bedroom tax', came into force in April 2013 and affects approximately 40,000 tenants in Wales
That is a higher proportion of households than any other region of the UK
My own council [Swansea], like many in Wales, has been overwhelmed with people seeking help and advice on the bedroom tax, and local councils in Wales have voiced considerable concern over the changes being made to the UK housing benefit system.
What is plainly obvious in most cases is that the bedroom tax reform places some of our most vulnerable residents under severe financial pressure, while offering them no viable way to change or improve their situation.
There are simply not enough smaller properties for people to move to. There remains an acute shortage of 1 and 2 bedroom homes in Wales.
– Councillor David Phillips, WLGA Spokesperson for Welfare Reform
Tenants affected by the 'bedroom tax' are falling behind their rent payments because they can't afford the extra costs.
The Community Housing Cymru have helped to make recommendations on the report. They say the Welsh government need to build more houses to deal with the shortage.
We are in the process of gathering data from our members looking at the impact of the first six months of the 'bedroom tax'. 87 percent of those who responded have seen an increase in arrears since the introduction of the 'bedroom tax', with 43% of tenants part paying but almost 20% paying nothing at all towards the shortfall.
The housing supply crisis has been a major contributor to the increasing welfare bill and until we see a long-term affordable house building programme, that will drive down the price of rents for everybody, this won't change.
– Nick Bennett, Group Chief Executive of Community Housing Cymru