This article examines claims that social housing allocations policies can, on the one hand, contribute to and on the other, counter, social exclusion. In setting the scene, the paper investigates connections between housing processes and social exclusion and describes the development of social housing allocations systems over the past few decades. Drawing on evidence from two recently completed national studies in England and Scotland it shows that allocation policies contribute to social exclusion in three main ways. First, a large proportion of social landlords restrict eligibility for social housing thereby contributing directly to exclusion. Second, mechanisms within allocation systems continue to segregate the most excluded to the worst residential areas. Third, through the 1990s allocation policies became increasingly coercive, so reducing or eliminating tenant choice over their own housing in distinct contrast to the choice that is available in the private market. The paper then reviews the dilemmas faced by policy-makers: whilst aspects of allocations contribute to social exclusion at the individual level, they may be justified by their role in promoting sustainable residential communities. Although there are hopes that the ‘choice-based’ approaches to lettings which emerged in the late 1990s can both boost community sustainability and counter the disabling impact of coercive approaches, the article suggests it is unlikely that such methods can significantly enhance social inclusion as long as social housing remains a housing sector of last resort, with in-built disadvantages.