Barry Williams, then 34, killed his neighbours George and Iris Burkitt and their son Phillip in October 1978.
Williams shot the three dead before turning the gun on Mr Burkitt's daughter Jill, then 17. She was hit six times but survived, as did another neighbour, Judy Chambers.
Later, he killed Mike and Liza Di Maria at a garage.
Williams, of West Bromwich, was sent to Broadmoor without limit of time after admitting manslaughter on the grounds of diminished responsibility at Stafford Crown Court.
Peter Snape, MP for West Bromwich East, has written to the Home Office criticising the decision.
He said: 'It is crass, insensitive and dangerous for him to be released to a hostel so near the scenes of his crimes.'
Judy Chambers said: 'I cannot believe he is back in the area. It is terrifying.'
A Home Office spokesman refused to comment on the case.Reuse content