Objectors to the plan, for 23 houses and an access road on land at Roman Road, Tadcaster, claimed the housing was not needed and the development was contrary to planning policy for the preservation of open land.
But Selby DC, which approved the plan in June 1994, insisted it was necessary if it was to meet the housing needs of residents in the Tadcaster area.
And on Friday three appeal judges unanimously gave developers, Persimmon Homes (Yorkshire) Ltd, the go-ahead for the development after dismissing the objectors' arguments.
He claimed the plan was contrary to council planning policy discouraging residential development outside built-up areas.
Such developments, he argued, could only be permitted if they were 'essential to the needs of agriculture or forestry or there were other exceptional circumstances'.
But John Howell QC, counsel for Selby, said the development had been necessary because the council had been struggling to meet the housing supply it had projected would be needed in the future.
'In the circumstances,' he said 'the shortfall was an exceptional circumstance.'But Mr Horton denied there was a shortfall in housing, saying the council's own figures showed there were enough non-controversial sites in the area to create an 'over-supply' of housing for Tadcaster and nearby villages.
Mr Howell admitted there did appear to be an over-supply on paper but said in reality there was a shortfall because some sites would not be ready for development in the near future.
And, as government guidelines allowed council planners to take into account sites' capacity for development in 'practical terms', he argued the council had been entitled to grant planning permission for the Roman Road scheme.
After hearing Mr Howell the judges, Lady Justice Butler-Sloss and Lords Justices Pill and Judge accept his arguments to dismiss the objectors' claim the grant of planning permission should be overturned as having erred in law.
Giving judgement, Lord Justice Pill described the decision as 'unimpeachable' and one the council 'was fully entitled to make'.
After losing their case Samuel Smith Old Brewery and Oxton Farms were both ordered to pay the council's legal costs as well as their own.