A shortage of available homes is forcing some to engage in a "culture of dishonesty", according to Sinn Féin's Patricia Logue.
Despite people lying to the Housing Executive, Ms Logue said there were still some "very genuine" cases, which made the situation more unfortunate.
DUP councillor Joe Miller said: "New applications and homelessness have gone up but housing is coming down."
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People facing desperation will do things in an attempt to get points on the Executive's system, according to SDLP councillor John Tierney.
The points system is used to calculate an individual's suitability and need for social housing.
"In order to reach the 180 points required, you need to be homeless, overcrowded, sharing and have at least one or two children and even then people still aren't at the top of the list," he added.
Sean Mackie, who heads up the Housing Executive's northwest operations, called for more funding to meet social housing targets.
He said more than 100 new homes have already begun to be built in Derry, but more money is needed to met targets.
The council has now organised talks with the Housing Minister Margaret Ritchie to help address the issue.
(PR/JM)
