The Government's so-called bedroom tax is a "callous" policy that will make the poor poorer, Labour say.
Shadow work and pensions minister Lord McKenzie of Luton described benefit reductions for people under-occupying social housing as a "grotesque experiment".
From next April housing benefit will be cut by 14% for people deemed to have an extra bedroom and 25% for those with two or more extra bedrooms.
The Government argues the proposals will save money and help deal with a housing shortage by encouraging people to move out of homes that are too big for them.
But Lord McKenzie said: "The Department of Work and Pensions have no idea how tenants will react and the Government do not seem to care. Indeed they hope the tenants will sit tight and take the hit, as that way the Treasury maximises its saving.
"It is a callous piece of public policy which will put people into debt, drive increased homelessness and fracture communities, and we should have none of it."
Opposing regulations in the House of Lords that will bring in the changes, Lord McKenzie said the average family affected would lose £14 a week and in most areas there were not enough smaller council or housing association properties for people to move into.
He described it as a "certain recipe for driving the poor into greater poverty and debt".
But welfare reform minister Lord Freud said there was a "major financial imperative" behind the move as there was a "compelling argument for reining in housing benefit expenditure".
He told peers: "We do believe it will result in more efficient use of social housing stock over time, which in turn should help us to tackle some of the overcrowding."