Developers Morris Homes Ltd had gone to the high court to attack the council's refusal to earmark its 3.1 hectare land holding at Wateringpool Lane, Lostock Hall, Preston, for 80 new homes.
The council said the site was valuable as open space and as a 'green wedge' between built-up areas on the southern side of Preston.
But the company had a victory with potentially major implications when deputy high court Judge Michael Rich QC ruled the council's approach to the issue had been 'plainly wrong'.
The judge said the inspector had recommended that seven new sites be allocated for housing development in the area's local plan, but the council had in fact earmarked only one.
He rejected Morris Homes' claims that the council had 'improperly and unfairly' decided to allocate land off Grasmere Avenue, Leyland, for housing instead of the Wateringpool Lane site.
He also dismissed allegations that the council had misapplied a policy in the Lancashire structure plan that 'restraint' be exercised in allowing housing development on strategic sites and that a careful balance should be struck between allocating land for housing and employment-related developments.
But Mr Nicholas Nardecchia, for Morris Homes, argued that the council's decision would lead to a serious shortfall of housing land supply well before the end of the Local Plan period in mid-2006.
The speed with which houses were in fact being built meant that, by 2002, there would in effect be a 'moratorium' on all home building in South Ribble unless land allocations were increased, he claimed.
Upholding the company's challenge, Judge Rich said the council had reached its decision 'on a mistaken basis and false reasoning'.
Although it was 'by no means certain' that the council would now decide that existing housing land allocations are inadequate, he said the matter would now have to be reconsidered.
Strand News Service