Community activists have been fighting developer Al Maha for more than three years, arguing a building in excess of five storeys would breach local limits on height and floor space. Those rules are designed to be flexible, but the court found that concerns over parking and traffic should take precedence. Acting commissioner Robert Hussey also ruled that a sixth storey would be "undesirable" because some balconies would have to be screened for privacy and study rooms could be used for "other purposes".

Chris Johnson, chief executive of developer group Urban Taskforce, said the "strange" decision was an example of planning laws undermining housing affordability. "A big site needs to do its bit to house sufficient people," he said. "I would have thought six storeys could be handled quite comfortably."

Local Greens MP Jenny Leong said the court's verdict was a win for sensible development over a "last-minute land grab" sought by the developer. Marrickville Council was already exceeding its housing targets as set by the state government, she said. "It's certainly not as if this area as a whole isn't pulling its weight."

Most stakeholders now accept that greater density in the inner city and around transport hubs will be necessary to accommodate an extra 1.6 million Sydneysiders by 2031. Ms Leong said the Greens agreed, but added it was important to ensure developments were matched by schools, open space and other amenities. "That doesn't mean giving developers free reign on height and scale," she said.

Mr Johnson said the balancing act also required residents to accept the byproducts of urban living, such as balcony screens. "It's a pity," he said of the Newtown case. "We're not going to keep our city moving forward into the future if everyone has that attitude."