Developers wanted to demolish a vacant building off Wolverhampton Street, previously used as offices, and create a new block as well as extend an existing one to create the new units.
Agents Michael Edwards Associates Architects said the proposed development would be beneficial to the area.
But planning officers rejected the plans for a string of reasons which included fears the development would be over-cramped in the space.
Other concerns raised included the impact is would have on the Willenhall Conservation Area and the potential effect it could have on traffic.
In the application, the agents said: "The existing site forms part of the street frontage to Wolverhampton Street, near the Willenhall district centre, in a sustainable location within walking distance of shops and good bus links.
"Walsall’s development plan as a indicates that the site should be developed to provide additional public car parking, for residential use or for purposes in connection with the adjacent medical/community centre.
"The proposed development will make a positive and beneficial use of land within Willenhall district centre, a sustainable location within walking distance of shops and good bus links.
“It will provide a design of a residential block that builds on the use of existing materials on the existing street frontage of Wolverhampton Street."