Stevenage had planned for 20,000 new homes, but 9,600 of these would have been built in North Hertfordshire District Council’s area as urban extensions to the town’s north and west.
That expansion formed part of the East of England Plan, approved by the previous government.
But communities secretary Eric Pickles has said that councils can treat his intention to abolish regional plans as a "material consideration", and North Hertfordshire has decided it will no longer be bound by the plan.
Inspector Douglas Machin recommended Stevenage to withdraw the draft core strategy because North Hertfordshire was in the process of setting its own housing target, and had advised him this was unlikely to provide for Stevenage’s growth.
"This convinced the inspector that the growth of the town planned in Stevenage’s draft core strategy is now undeliverable," a Stevenage statement said.
John Gardner, its executive member for environment and regeneration said: "The contents of the inspector’s report require careful and detailed consideration.
"We have not made any decisions about the future development of the town, and we will not do so before the autumn."
Stevenage has land available for new homes to meet local needs. But the regional plan designated it as a housing and employment growth point, and it needed to grow beyond its boundary to cater for that.
A council spokesman said: "With the loss of the draft core strategy, the borough council will need to go back to a 'blank sheet of paper' and determine how much development it can meet solely within its own administrative boundaries. But it will be nowhere near 20,000 new homes."
North Hertfordshire’s portfolio holder for planning, transport and enterprise, Tom Brindley, said the previous government had wanted excessive building in his area.
"Requiring 15,800 homes to be built, without the necessary infrastructure improvements, would be a catastrophe to the green belt, our local environment and the infrastructure in the area, which is already suffering badly," he said.
"We believe Stevenage can meet its own housing need for the foreseeable future within its own administration boundaries."