Harrogate Borough Council' s housing team was sent back to the drawing board to rethink its plans for the Dene Park site in May but has now gained approval after a meeting on Tuesday.
Councillors said previous concerns over the layout and designs had been addressed, although there were still questions over the loss of the car park.
Councillor Sue Lumby said: "I have received a letter from a number of residents who are very concerned about parking. If cars are forced to park on pavements, it is going to make access for buses and refuse vehicles difficult."
Gillian Wood, the council's housing growth manager, responded to say the car park was "grossly underoccupied" and that 12 new parking spaces would be built for the use of all residents over nearby grass verges.
"This will reduce parking on the street," she said.
"We have been monitoring the car park for quite a long time now and we are finding there are generally three cars on there.
"People have a preference to park outside their property, so if we can provide 12 off-street spaces that is 12 cars off the street which should help."
There are around 1,800 households on the council's housing waiting list and the housing team said the car park would help provide "much-needed" accommodation for these residents.
Councillor Pat Marsh also said the plans should be welcomed for this reason.
She said: "There are people parking at the site, but it is very small in numbers. To me, what is more important is the almost 2,000 people on our housing waiting list.
"I'm really pleased the council is moving forward with this."
Councillors unanimously voted to approve the plans at Tuesday's meeting.
By Jacob Webster, Local Democracy Reporter