The Joseph Rowntree Housing Trust hired architects and had staff working for 18 months on a sheltered housing scheme.
But the plan became bogged down in objections and came to nothing when the council, which owned the land, accepted a better offer for it from a construction company.
The charity complained to the local government ombudsman about the handling of their housing scheme.
He said: 'This was a complex project for both the trust and the council. Clearly the housing officers were attracted by what the trust might offer were it to be the developer.
'But I do not believe the trust was somehow misled into investing resources by one side of the council only to be frustrated by another side with different objectives.'
Scarborough's chief executive, John Trebble, said: 'The ombudsman recognises this was a complex case which dealt with sensitive issues where there were a number of strong objectors.
'Against this difficult background it is pleasing to note the ombudsman has not found any maladministration against the council.'