One in ten children live in overcrowded homes in England, putting a huge strain on family relationships, says Shelter.
The charity suggests building rates are "nowhere near enough" to ease pressure on homes where several children share a bedroom or people sleep on sofas.
The problem is most acute in London, with one in three children in social housing living in an overcrowded home.
Shelter director Adam Sampson said health, education and well-being were being damaged by miserable conditions.
He said: "A lack of space and privacy is destroying [children's] relationships with their parents and brothers and sisters.
"Overcrowding must be tackled to prevent future generations of children being permanently scarred."
Shelter is working on a study into the "human cost" of overcrowding on children.
England - 905,000 (9.2%)
North East - 31, 400 (6.3%)
North West - 123,800 (8.9%)
Yorkshire/Humber - 86,000 (8.5%)
East Midlands - 57,900 (6.9%)
West Midlands - 97,300 (8.9%)
East - 70,400 (6.5%)
London - 261,000 (18.1%)
South East - 109,000 (6.9%)
South West - 68,200 (7.3%)
Quoting government figures, it said 905,000 children, or 360,000 families, were living in overcrowded conditions and described the situation as a "crisis".
The charity cited the example of Jennifer, who lives with her teenage son and daughter and another daughter of four in a two-bedroom house.
Her daughters have to share a bed and Jennifer says the lack of space puts a huge strain on the children.
The Office of the Deputy Prime Minister (ODPM), which is responsible for housing, says it is aware overcrowding is a "serious issue".
A spokesman said the government was amending the Housing Bill to change the "overcrowding standard" - the method by which overcrowding is measured.
"One of the main problems from the research is there is no commonality in the definition of what's meant by overcrowding," he told the BBC.
He said it was all part of a government programme to bring all social housing up to standard by 2010 and to provide more affordable housing.
He added that a recent government-commissioned report from De Montfort University had shown there was no definite link between overcrowding and poor health or achievement at school.
"But we do accept that there's something there," he said, adding that more research was needed.