Hundreds of families are forced to live in B&Bs and temporary accommodation while people are illegally subletting council homes.
Lambeth Council is forced to place about 1,200 households in hostels, guest houses and privately rented flats while it is estimated 2.5 per cent of council and housing association homes are being illegally sub let, about 1,250 properties.
The Audit Commission estimates it costs a local authority £18,000 to house a family in temporary accommodation for a year, which would produce a cost of £21.6m to the council.
Ron Hollis, chairman of Lambeth Tenants' Council, said more needs to be done to tackle the issue.
For people in desperate need who have waited, they don't get the property and that obviously is very wrong.
It's a disaster for the people involved. They have a roof over their heads, but little else.
Alongside the households in temporary accommodation, about 27,500 people are on Lambeth Council's housing list.
Housing investigators carried out checks on about 650 properties between April and September and made recommendations 49 be recovered by the council.
During that period 32 were returned to council control and made available for fresh tenants.
Councillor Pete Robbins, cabinet member for neighbourhood services, said:
It is not a victimless crime. It deprives people who are in genuine need of housing the chance of a permanent and safe roof over their head.
Given the shortage of affordable homes in London it is completely unacceptable that tenants sub-let council homes, often at exorbitant levels way above the social rent.
We will not tolerate this behaviour and we will continue to crack down on anyone involved in this illegal activity.
In August 2011 the council introduced the Cut the Queue project, employing a dedicated team to investigating illegal use of council properties, in addition to work carried out by the existing housing investigation team.
The chief executive of Lambeth Living, which manages the borough's council housing stock, Neil Litherland, said:
Since the Cut the Queue campaign began last year we have recovered dozens of homes for families who genuinely need them, with hundreds of other cases under investigation.
Lambeth Living and the council are rooting out this type of fraud and freeing up permanent homes for people on the housing waiting list.
Coun Peter Truesdale, Liberal Democrat spokesman on housing, believes more must be done to free up homes for the needy.
Lambeth's neglect on this issue has cost the council millions and meant homeless families suffer.
The cost of being soft on fraud has been borne by families who are kept in expensive and unsatisfactory temporary accommodation.
Source: Streatham Guardian