Some 160,000 social housing tenants in London alone are thought to have been cheating, subletting their properties and making millions of pounds at the taxpayer's expense.
Fraudsters manipulating the system take out mortgages or credit at other addresses whilst claiming against the benefits system.
And now housing minister Grant Shapps warned the scale of tenancy fraud may be even larger than expected.
He said: "It is completely unacceptable for housing cheats to get a home they don't need at massively subsidised rates, only to rent it out at market rates and pocket the difference.
"Social housing fraud has become big business, ignored for far too long."
The government has so far committed to spending £19m through local council initiatives to improve the housing system. However, recent evidence under a HJK investigation indicated some councils had not spent a penny on tackling the problem.
Howard Kleinberg, director of HJK Investigations, the housing fraud specialist which carried out the research, said: "If this problem was taken more seriously, it could make a significant dent in the council house waiting list.
"But it will never happen, because of the bureaucracy and the way money gets lost in the chain of officialdom."
Around 1.8 million households are thought to be on the waiting list for housing.
