The Youngs, and their son Eamon, wanted to build an amusement park on their rural-zoned property near Wanaka Airport, with go-karts, bumper boats, tenpin bowling and a cafe.
Their proposal was initially given consent by Queenstown Lakes District Council-appointed commissioners in 2011.
However, neighbours Ulrich Staufenberg and Jeffrey and Margaret Feint lodged an appeal in the Environment Court, saying the park would adversely affect the rural experience of the area and set a precedent for future commercial development.
In an unusual move, the council opposed its own commissioners' decision to grant consent, but was prevented from calling evidence in opposition at the appeal by an Environment Court ruling.
The court then overturned the consent last year in a split decision, in which the two commissioners ruled in favour of the appellants and held the majority judgement, while Judge Jon Jackson dissented and recommended the QLDC's earlier decision granting consent be confirmed.
The Youngs subsequently appealed to the High Court, where only points of law can be considered, not the merits of the application.
Their appeal hinged on five alleged errors of law by the Environment Court and was heard last month in Invercargill by Justice Cameron Mander.
In his judgement released on Friday, Justice Mander acknowledged the majority decision of the Environment Court did contain some errors of law.
''I have not, however, been persuaded that viewed either individually or collectively they were material errors. The appeal is therefore dismissed,'' he said.
Mr and Mrs Young said they were ''very disappointed'' with the final outcome of the ''long and frustrating'' resource consent process.
''[The complex] should have been up and running by now, but instead we've spent over three years going through a ridiculously ... lengthy process with nothing to show for it,'' they said in an email to the Otago Daily Times.
''It doesn't seem right that two families ... the closest 1.2km away, could stop the development from happening thus penalising the wider community of what we felt would have been a great attraction for locals as well as tourists.''
Counsel for the neighbours Karen Feint said the proposed development was simply in the wrong place and would be better located in an industrial/commercial area.
''A large-scale commercial recreation complex would stick out like a sore thumb on the open rural landscape of the Mt Barker area. In my opinion it is a good thing that contemporary development in the Wanaka area is taking place in the context of a much stricter planning regime, which should hopefully result in Wanaka avoiding the perils of unchecked development, such as have occurred in Queenstown in the past.''