State Member for Wollongong, Paul Scully, said Kiama's council and the developer, Traders In Purple, need to find a solution.

"We have a shared responsibility to address the housing crisis in NSW and I think rather than a straight no, Kiama council should be working with the proponents on a proposal that could deliver more market and affordable housing in the local government area," Mr Scully said.

Traders In Purple are "disappointed but not deterred" after the councillors' decision on Tuesday, April 16.

The Sydney-based developer proposed to build 1000 new homes on 114 hectares of rural land, 25 per cent of which would have been reserved for key workers, locals and affordable housing.

Traders In Purple CEO Brett Robinson said the company will continue to work with the council to deliver Springside Hill as part of the town's growth and housing strategy.

"We are naturally disappointed but we realise that Springside Hill is by far the largest proposal that the council has been called upon to consider," Mr Robinson said.

"Clearly a situation where the average house cost 15 times the median income and private rental consumes more than a third of wages is not sustainable.

"It is already forcing locals, particularly those wanting to buy a home and raise a family, to leave town, leaving Kiama without essential workers and the next generation of families."

The proposal was met by fierce resistance from locals with more than 600 residents signing a petition against the application.

Mr Robinson said Springside Hill would provide housing residents of Kiama, need regardless of age.

"It is a myth that every Baby Boomer is sitting on property wealth.

"Many of the most valuable people in the Kiama community, who have spent a lifetime working in essential but poorly paid jobs, face a grim future in which they can never afford to retire.

"They desperately need the affordable, secure housing that Springside Hill will provide," he said.

Mr Robinson is concerned the report that formed the basis of the council's decision included factual errors about the project's timeframe, as well as other key issues.

Had the council supported the proposal, Traders In Purple insist the first new homes would have been delivered by 2027. The council's report blows that out to 10-15 years.

The report also criticised the lack of a contribution plan, however Traders In Purple say they have submitted "an offer to fund the necessary infrastructure to support development of the site at no cost to council".

The developers also are of the opinion the council's report "misrepresented" views of government agencies and that requests for further information was "unsupportive".