Councils will find it difficult to get developers to build affordable housing under plans by Boris Johnson to raise rent levels, the High Court has heard.
Nine local authorities have begun a legal challenge against the Mayor of London's planning policies.
Mr Johnson wants subsidised housing redefined so tenants pay affordable rents of up to 80% of market values.
The boroughs argue that rents at 80% of market levels will be unaffordable for many local people.
Islington Council said the cap was "totally wrong for our city".
The Labour-led authorities - Brent, Camden, Enfield, Hackney, Islington, Lambeth, Greenwich, Southwark and Tower Hamlets - are against the move.
They want to retain the current arrangement where they can charge social rents, typically 30-40% of market rents in an area.
Mr Johnson has proposed the change in alterations to the London Plan, which determines planning and housing guidelines in the capital.
The councils' lawyers argued that given it was their legal duty to meet their areas' housing needs, they should be able to determine affordable rent levels.
The High Court was told the boroughs' negotiating position with developers would be removed if they knew they could expect rents of 80% the market level.
The local authorities claim they would have no "public policy back-up" to extract a better deal from developers.
The court heard a tenant in Islington would need an income of £43,000 to be able to afford the proposed level of affordable rent in the borough, and rents would exceed the benefit cap across much of the area.
The Mayor of London's lawyers will argue that he is not proposing a legal restriction, and boroughs will still be able to negotiate with developers on lower rents, along with other affordable housing demands, on a site-by-site basis.
In a statement, a representative for the Mayor of London said: "The Mayor wants to maximise the provision of affordable housing across London, whereas allowing boroughs to impose individual rent caps would significantly constrain financial capacity and have the potential to shut down affordable housing supply."