The housing minister said councils should offer to help pensioners move to more suitable accommodation to create space for families.
Local authorities would then take over responsibility for maintaining and renting the vacated properties at affordable rates, transferring any profit from the rental income back to the elderly person or their estate.
The government believes the proposal would provide support for the elderly to move without having to sell their homes at a time when there is a shortage of affordable housing for young families.
Shapps told The Daily Telegraph: “For too long the housing needs of the elderly have been neglected.
“Older people who should be enjoying their homes have watched helplessly as their properties have become prisons and many have been forced to sell their homes and move into residential care.
Shapps said that helping some older people move to more suitable accommodation could make a “life-changing difference”.
“They can live independently for longer and enjoy more disposable income without selling their home and other families can benefit from living in an affordable home,” he said.
Andrea Rozario, director general of Safe Home Income Plans, said: “It is clear that there is a scarcity of housing for young families and the government is right to look at how this problem can be solved.
“However whether this is a viable option is still doubtful and these plans raise more questions than answers at present.
“There is likely to be a huge cost attached to this scheme not to mention the high level of administrative work that will need to be done around it.
“As the Government has made it clear that no-one will be forced into taking part in the scheme, it does beg the question of how many older people will choose to leave their family homes which they are likely to have emotional ties to and move into a smaller property, potentially away from family and friends.”
Rozario added that the plans suggested alternative such as sheltered housing but it may not be desirable to many people.
She said: “Older people may well want to consider downsizing but on their own terms and with the ability to take the money released immediately, or else look at alternative options such as equity release, which will provide them with a boost to their retirement income, while enabling them to remain in their home.
“However it is clear that more choice needs to be available and this step may help to offer other options for those considering where they wish to live in their retirement.”
