Proponents of a contentious 16-unit development application on a quiet Traralgon court are dismayed that Latrobe City Council rejected a third extension to start building.
The permit had been delayed for five years due to developer Michael Pogorzelski's ill-health.
Mr Pogorzelski applied for an extra 12 months to start the project in McClure Court which is part of Sherwood Estate in Traralgon.
But councillors quashed it as it had dragged on for too long and the plan contradicted Latrobe's draft housing strategy.
Latrobe City originally knocked back the application after neighbours formed Sherwood Park Action Group to object to the development.
Locals feared it would affect neighbourhood character and amenity, create parking problems and attract too many cars to the quiet court location.
However, the development was later given the green light at VCAT but Mr Pogorzelski shelved it for five years.
Developer assistant Cecile Leibowitz said she was "disappointed" by council's latest decision.
"He [Mr Pogorzelski] fell ill after he got the permit as the pressure was too much and he has not recovered, he is not well. The VCAT process put him under a lot of stress," Ms Leibowitz said.
Ms Leibowitz had wanted a further 18 month extension. She said Mr Pogorzelski was waiting for an operation and a 12 month extension would not be enough time to recover.
She said the application would have opened up living options for single, older people to live within a community with the security of neighbours close by.
"They could have lived in a nice place instead of in a retirement home. They could have watched children playing in the street," she said.
Ms Leibowitz said she would not make any further comment about future intentions for the permit or whether they would appeal Latrobe's decision.
Cr Kellie O'Callaghan said she and her colleagues were aware of the level of ill-will in the community against the application.
"I think council has been more than able to provide the time allocated in the past. I think that is now enough. I don't think we should allow an extension," she said.
Cr Dale Harriman said approving this type of high-density living in that location went against a Live Work Latrobe draft housing strategy that set out where developments should go.
"Our high density needs to be centred around the CBD and grow out from there," Cr Harriman said.
"People buying new developments heading out of town want somewhere like Sherwood Park to bring up their kids, which is why this area had a lot of courts within it.
"They don't want rat-runs, or 20 or 30 people living next door."