Developer Wainhomes had lodged an appeal following North Devon District Council's failure to determine the planning application, which was submitted in December 2011, within the prescribed time period.
The inspector said the Council had indicated that it would have refused the application because of the proposed development's impact on the integrity of the landscape setting of the town and the character of the surrounding landscape as well as the impact on the setting of nearby Gorwell House and Tollgate Cottage, which are both listed buildings.
The inspector said in her report that the scale of the development would lead to the "extensive erosion" of part of an undeveloped "downland rim" around Barnstaple. She said that this would cause "significant harm" to the setting of the town in conflict with local plan policies seeking to ensure that new developments "respond to and enforce locally distinctive landscape".
None of the proposed measures, including the retention of existing trees and the provision of additional planting, would mitigate the harm caused by the extent to which the "undeveloped upper slopes of the hilltop" would be replaced by housing, the inspector said.
She said that, although the harm the development would cause to the designated heritage assets, Gorwell House and Tollgate Cottage, was "less than substantial", this did not mean that the weight attributed to the harm should be less than substantial.
"I consider that the loss of the original backdrop to Gorwell House, resulting in the near total loss of that part of its significance which derives from its countryside setting and spatial separation from the town, would be an adverse impact of considerable weight," the inspector said.
"The alteration to the setting of Tollgate Cottage would cause a much lesser degree of harm to the significance of that building, but would still be an adverse impact carrying some weight," she said.
The inspector concluded that the landscape harm caused would be sufficient to "significantly and demonstrably" outweigh the benefits of the proposed development, including the delivery of housing to help the Council meet its five year housing requirement under the National Planning Policy Framework as well as benefits to the local economy.
