Southwark's planning committee has voted not to require the developer of the Quill tower near London Bridge to provide cash towards the provision of affordable housing in the borough.
The committee resolved to grant planning permission for the tower, designed by SPPARC, last November but the final decision notice has not been issued because the matter was referred to communities secretary Eric Pickles.
Mr Pickles decided not to order a public inquiry but the hold-up means that Southwark's planning policy has changed since the matter was first discussed by the planning committee.
The borough's new core strategy document will in future require developers of student residences to provide affordable housing or a cash sum.
The document was approved by a Government inspector last month, endorsed by the council's cabinet this week and will be adopted by council assembly in early April.
The council has not yet devised a formula to determine the level of affordable housing to be provided in conjunction with student accommodation developments, but if existing policies for private residential schemes were applied, the Quill would attract a payment of £18.8 million.
The recent decision by planning inspector John Papworth on the 200 Great Dover Street development also has a bearing, as the inspector ruled that in the absence of a procedure for implementing the policy, no negative weight should be attached to the absence of any affordable housing from the development.
"I'm struggling a bit with the fact that we've adopted a policy but haven't worked out what it means or how to apply it," said Cllr Nick Stanton, a former leader of the council who now sits on the planning committee.
Aaron Peate, representing the owners of adjacent Beckett House, told the committee that they should attach "almost maximum weight" to the new policy which is just a fortnight away from formal adoption. He added that the Great Dover Street decision "shouldn't be used as a shield".
The committee was addressed by David Glue and Russell Gray of the Bermondsey Village Action Group.
Mr Gray contended that councillors had been "grossly misled" by officers about the Quill development, and reiterated his threat to seek a judicial review of the council's decision.
He asked: "If you give away £18.8 million of social housing money, BVAG will go to court and get it back – and how you will you look then?"
He said that BVAG's grounds for judicial review would centre on the council's failure to perform an environmental impact assessment in relation to this development.
Natasha Smyth from developers Investream said that "we are now at a point of urgency" if the Quill is to be completed in time for the 2013 academic year.
Asked what would happen if the council sought an affordable housing contribution from the developer, Rory Joyce, representing Investream, replied: "That would be the end of the scheme".
He said that the Quill would have "higher quality student accommodation than some of the schemes you see".
Cllr Stanton reminded Mr Joyce that 13,000 people are on the housing waiting list in Southwark and said that he didn't see why the developer shouldn't be required to follow the formulas of planning policy.
Cllr Nick Dolezal disagreed with Cllr Stanton and pointed out that there is a "pressing need for student accommodation" in the borough.
Grange ward councillor Mark Gettleson addressed the committee to urge them to explore the possibilty of seeking extra cash from the developer.
He said that the Quill would be "more grandiose than any other student accommodation anywhere". He feared that living in the Quill would only be open to students "of extraordinary wealth" and it would be beyond the means of most students at the adjacent Guy's campus of King's College London.
"If this can bring more social housing in my ward, it's something we should investigate," he said.
Cllr Dolezal accused Cllr Gettleson of "deliberately trying to scupper a viable scheme".
"We should not penalise applicants because of other people's delays," he said.
Southwark's head of development control, Gary Rice, told the committee that to seek extra cash from the developer would "take significant time" and "would in effect kill the scheme".
The two Liberal Democrat members of the planning committee moved an amendment to the officers' recommendation that would require officers to negotiate a cash contribution from the developer, but they were outvoted by the Labour councillors who have a majority on the committee.
Planning permission will now be granted subject to the approval of the Mayor of London.