Decorating firm S.J. Dixon & Son Ltd, which has been trading in the city since 1854, had applied for permission to demolish a series of disused warehouse buildings at its Cleveland Road premises to allow for the scheme.
The site, which also borders Bilston Road and Hospital Street, falls within the Cleveland Road Conservation Area. This includes the nearby Grade II listed Royal Hospital building, the former Baker’s Shoe Factory – also Grade II listed – and the adjacent Dixon’s Building which is locally listed.
However, the council’s planning committee this week voted unanimously to refuse the proposals following an earlier site visit.
Councillor Anwen Muston said: "I think this development, in the way that it is now, would be detrimental to the future of the residents who are going to be living there.
"This could compound traffic and parking issues, so I would move to refuse this recommendation."
Councillor Alan Butt added: "I know the site very well, having worked within the Royal Hospital building for many years.
"I think this new development is totally inappropriate for a building of that historic nature and doesn’t sit nicely with the rest of the plans for the area, so I would support Cllr Muston’s refusal for the site."
Former council leader Councillor Roger Lawrence said: "I think that the alternative to development, which is long-term dereliction, is even worse and I cannot see the grounds for turning this down.
"I would encourage the applicants to appeal because I just do not think this is a decision which can be justified."
Senior planning officer Vijay Kaul said objections to the proposals had earlier been received from Historic England, The Victorian Society and All Saints Action Network (ASAN).
Each agreed that the warehouse buildings should be retained and reused differently, possibly for residential accommodation.
The Victorian Society said the existing buildings still contributed to the streetscape and setting of the former Royal Hospital.
The committee earlier heard from applicant Tim Dixon, who said: "My family’s business has been based in Wolverhampton for the past 140 years.
"Our aim was to create a new commercial use for the site which would provide a long-term source of income to help support our business.
"The buildings are so far beyond any meaningful use that the valuation office removed them from the ratings list in 2015.
"Expert building surveyors have confirmed the cost of bringing them back to a usable condition comes to around £2.3 million. We simply don’t have the funds to undertake these works."