Councillors in De Beauvoir have raised concerns about a proposed mega homeless hostel, because standards at two adjacent hostels the developer already runs are “far from acceptable”.

Polly Billington and James Peters estimate Hackney Council will be paying up to £4million annually by charging £256 a week to temporarily house each family in 292 rooms in the 11-storey block in Kingsland Road, Haggerston.

In a letter to Ian Rae, the council’s head of planning, they claim residents at Metro and St Peter’s Way hostels next door – also owned by Blue Chip Trading Ltd – have told them about “substandard” living conditions there.

“We can’t stand by and allow them to be reproduced in a new, larger hostel,” they state. “Our principle and overriding concern is for the welfare of the people who will be staying in the hostel.

“What we want to avoid is a private party making very considerable profits from the misfortune of our fellow citizens who can no longer afford the rocketing rents in Hackney. We certainly want to avoid that private party profiting but not ensuring decent living conditions for the people who will live in the hostel.”

The hostels lacked basic facilities like communal areas, access to washing machines and the internet, which is necessary to “fully participate in society and the job market”, say the councillors, adding: “We would be worried for the health and wellbeing for those in the hostel as well as those living nearby. Several hundred people, including many children, living in cramped accommodation that is wholly unsuitable for their needs will place tremendous stress upon those people. It is unfair for them and it creates a real risk of problems that will spill over into the community.”

Rooms at Blue Chip’s hostels are contracted to the council via property agent Finefair Ltd, which was paid £3.1m of taxpayers’ money last year. They declined to comment.