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The High Court has found the Queenstown Lakes District Council made no errors in rejecting a would-be special housing area (SHA).
In September, Ayrburn Farms Developments Ltd applied for a judicial review of the council's decision not to recommend its proposed development, near Arrowtown, to the Minister of Housing.
However, Justice David Gendall said he was satisfied the council had not "improperly disregarded'' the purpose of the Housing Accords and Special Housing Areas Act (HASHAA), nor taken into account considerations it was not entitled to in making the decision not to recommend the proposal.
In February, Ayrburn submitted its expression of interest for a 150-lot development on a 45.7ha site on Arrowtown-Lake Hayes Rd where houses would be delivered for about $450,000.
Ultimately, the council decided not to recommend it to the minister, which led to the firm - associated with developers Chris and Michaela Meehan - applying for the judicial review in September.
It claimed, among other things, the council prioritised protection of Arrowtown's urban growth boundary over creating affordable housing, which was believed to be disregarding its responsibilities under the special housing laws and accord signed with the Government in October 2014 to improve housing affordability in the district.
However, Justice Gendall found Arrowtown's urban growth boundary did not receive "disproportionate weight or focus'' and there had been no error of law on the council's part.
"As such ... I conclude that the decision under review not to recommend Ayrburn's proposal was a lawfully available exercise of the discretion by the QLDC and this court should not interfere with it.''
In his decision, Justice Gendall said while the purpose of the Act was to enhance housing affordability by increasing land supply, it did not "simply ... roll out a blank canvas for development''.
"Despite the general thrust of submissions advanced before me on behalf of Ayrburn, the HASHAA does not set up a regime in which every area of land that meets the listed criteria ... must be declared an SHA.
"It simply cannot be correct to say that, in passing the HASHAA, it was Parliament's intention that every piece of land in a region on which a housing development could conceivably be put was required to be recommended to the minister as a potential SHA.''
A second SHA proposal lodged earlier this year by Ayrburn for a retirement village, comprising 201 homes, care and recreational facilities on the same site was also rejected by the council.
Justice Gendall said the council had indicated it intended to seek costs, to which it was entitled.