The report into the voluntary housing sales policy adopted by Wandsworth in the early 1980s has concluded that while the authority 'misdirected' itself in law when it pursued the policy it did not do so for any improper reason.
Allegations that the borough intended to attract likely Tory voters had no basis, it said.
The controversial policy introduced in 1983 by then housing chairman Sir Paul Beresford, now an environment minister, meant vacant council-owned properties were offered for sale rather than rent.
He criticised the authority on several counts, principally for failing in its statutory duties to the homeless and not taking into consideration the impact of 'red-lining' difficulty in obtaining mortgages for these homes on the saleability of properties earmarked for sale.
He said the report was an 'imbalanced report which fell far short of acceptable standards and failed to include information which would have counted against a decision to declare further sales areas'.
Furthermore, Wandsworth should have considered the consequences of its policy for people with medical conditions and those in need of social housing, and was wrong to assume it was entitled to strike a balance between its wish to increase home ownership and its duties to the homeless.
However, the report concludes there is no evidence any member or officer was guilty of wilful misconduct, and rules out the possibility of surcharging.
Shadow local government minister Hilary Armstrong said Sir Paul was responsible for policies which 'wasted taxpayers' money, forced the homeless into bed and breakfast and have now been found to be illegal.
'The people of Wandsworth deserve an explanation and unreserved apology from the current leadership and from Sir Paul.'
Sir Paul said: 'The report makes it quite clear the auditor puts no blame on councillors at all - I have nothing to apologise for whatsoever.'
A spokesman for Wandsworth council said: 'The policy of encouraging home ownership has been a great success and has helped make Wandsworth estates attractive places to live.'