The Local Government Association (LGA) said that nationally set planning fees are preventing councils from recovering the full cost of processing applications, with local tax payers covering a third of the costs since 2012.
Its analysis showed council have spent £450 million to cover the costs in the last three years.
It added that the cost of covering planning applications is growing at a rate of £120 million a year, and will pass £1 billion by 2020.
The LGA and professional body the British Property Federation are calling on the government to review planning fees as part of the forthcoming Spending Review.
Peter Box, LGA housing spokesman, said: "It is unacceptable for communities to keep being forced to spend hundreds of millions each year to cover a third of the cost of all planning applications.
"Government should recognise the huge pressure this is placing on already stretched planning departments that are crucial to building the homes and roads that local communities need but which have seen 46 per cent reductions in funding over the past five years.
BPF chief executive Melanie Leech added: "The government has talked a lot about how much it wants to get Britain building again, and ahead of the Spending Review we would strongly advise against further national cuts to planning departments if it wants to make this a reality.
"Instead, we would like to see government undertake a review looking at how the private sector might be able to make additional payments to planning departments in return for a quality service."
A Department and Communities and Local Government spokesman said: "We have got Britain building again, and have reformed the planning system so it is faster and more efficient.
"Councils have done well to deliver record approvals, with almost 250,000 homes a year receiving planning permission – up nearly 60 per cent since 2010.
"We are keen to ensure planning can be delivered in the most cost effective way and we have been listening carefully to representations from the sector about funding to planning departments."
Reports in today’s Financial Times suggest that the government will allow councils to set their own fees under measures to be announced as part of the Spending Review later this month.