Plan to build 12 new homes in a Cardigan cul-de-sac- will create a "social housing enclave" in the south of the town, a site meeting heard this week.
Residents of Tenby Road are objecting to plans by local housing association Tai Ceredigion to build the homes, which include four flats and three one bedroom houses, on waste land at the top of the road.
Tai Ceredigion's agent Jake Raynesbury told the inspection panel that there were hundreds of local people on the housing waiting list.
"This is much needed accommodation for members of the local community," he said.
But residents say that including one-bedroom homes in the development will be "out of context" with Tenby Road, which is mainly detached family houses.
Residents spokesman Paul Bowen said: "We sympathise with Tai Ceredigion. We are not against social housing but object to single bedroom flats which are out of context with this area."
Town councillor Dai Brabrook said Cardigan was already well served with one bedroom flats with new developments in Pendre and William Street.
Other residents suggested that it would be more acceptable to develop bungalows for the elderly on the site.
There were also fears that social problems linked to the nearby Ridgeway and Golwg y Castell estates could spread to Tenby Road.
"I have lived here for 30 years and there sometimes has been trouble," said Huw Forster. "This development means you are bringing it to this side of the road and it will become our problem."
And resident Rich Stretford said: "You are creating an enclave of social housing in the south of the town which will more or less destroy the area."
Other residents claimed that their property values would fall - and said that a few sales on the road had already fallen through because of the proposed development.
They also expressed concerns about increased traffic and the effect on local wildlife.
The site inspection panel will report their findings back to the next planning meeting on August 13.