Military homes should be run by a housing association to tackle the “poor” state of accommodation and stem an exodus of troops, the Conservatives have said.

Two-thirds of homes for military families need extensive refurbishment, with much service accommodation suffering damp, mould and rat infestations, a report found last year.

The government is consulting on plans to regenerate military homes with £7bn of funding by 2025, after bringing the defence estate back under Ministry of Defence (MoD) control last year.

Conservative shadow defence secretary James Cartlidge argued an Armed Forces Housing Association would build the “homes for heroes” long promised by governments.

Speaking at a press conference, Cartlidge said he was “genuinely ashamed” of the “poor standards of housing stock” he had discovered as Defence Procurement Minister in the last Tory government.

The UK needs to rapidly rearm and bolster its defence capabilities in response to “the most serious military threats we have faced for years”, he said.

“In my view, the capability that still matters most to our armed forces are its people. And they are still leaving service to their country faster than new recruits are joining.”

Official figures show 1,140 more people left the armed forces than joined last year.

Nearly a third of UK troops were considering leaving the armed forces due to the standard of accommodation, the Ministry of Defence’s (MoD) own survey found.

Housing associations are not-for-profit organisation that own, manage and build rental housing – often renting at discount rates.

Traditionally they reinvest any surplus income into maintaining and improving housing stock, rather than distributing profits to shareholders.

The new Armed Force Housing Association would be a “mutual organisation” with board representation from service families to “ensure their voices are heard”, Cartlidge said.

The body will be funded using money currently allocated for defence housing and could save the taxpayer the £80m per year currently being spent on rental costs for troops, Cartlidge said.

Last year the government bought back the defence estate from Annington Homes in a £6bn, reversing a privatisation deal struck in 1996.

A Labour spokesperson said that “far from making things better, these half-baked plans to privatise forces family homes yet again risks a disaster for personnel and for military capability”.

“By contrast, our Labour government is already investing far more than the Tories ever did into forces housing, to fix the long-term decline and deliver homes fit for heroes,” the spokesperson added.