The Surrey branch of the Campaign for the Protection of Rural England and local pressure group, POW Campaign Limited, challenged Waverley Borough Council's adoption of a local plan for its area in February last year.
The plan provides for a minimum of 11,200 new homes to be built in the borough, which is home to large tracts of green belt and the Surrey Hills Area of Outstanding Natural Beauty, by 2032.
Waverley accepted a local plan inspector's recommendation that that figure should include 83 dwellings per annum - a total of 1,575 homes over the plan period - to address unmet housing need in neighbouring Woking.
Despite the protected status of much of the land within its boundaries, the inspector said that Waverley was "significantly less constrained" than either Woking or the Borough of Guildford in terms of space for new housing.
Among other arguments put forward by the objectors were that the inspector's recommendations were based on out of date housing need projections in Woking and that the two councils, together with Guildford Borough Council, had previously agreed that they should not seek to meet shortfalls in each other's housing needs.
Their judicial review challenge was nevertheless rejected by the High Court in November last year.
However, in March the campaigners were given permission to pursue their challenge in the Court of Appeal.
Dismissing the objectors' appeal against the High Court ruling, Lord Justice Lindblom said the "fatal weakness" in their case was that it sought to draw the court beyond the line dividing the role of the judiciary and that of planning decision-makers.
He added: "There is - and can be - no suggestion that the council was not entitled to plan for the meeting of a proportion of Woking's unmet housing need...it is not wrong in principle, let alone unlawful, for a local planning authority to incorporate in the housing requirements set out in its local plan a proportion of the unmet housing need in another authority's area."
Assessing the extent of Woking's housing need over the plan period was an "inexact science", but the inspector had relied on the most up to date information available and his exercise of his planning judgment could not be faulted.
The judge, who was sitting with Lord Justice Patten and Sir Ernest Ryder, added that both objectors had played an active part in the local plan process and "cannot complain that the inspector overlooked what they had to say".
The inspector took a "cautious" approach, stopping short of advising that Waverley make up for the whole of Woking's unmet housing need - instead recommending a figure of 50 per cent - and his calculation of the extent of that need was "perfectly reasonable, making obvious good sense."
Pointing to the "scale and urgency" of Woking's growing under-provision of housing land, Lord Justice Lindblom ruled: "The inspector's relevant conclusions in his report are, I think, logical, coherent and unassailable in a legal challenge."
The inspector's reasoning was "clear, adequate and intelligible" and he had not been obliged to either direct a full-scale review of the local plan or to stop the entire process until further information was provided.
The objectors had also unsuccessfully challenged the March 2018 decision of the housing secretary to grant planning consent for development of a new settlement at Dunsfold Aerodrome. That site has been allocated for 2,600 new homes.
CPRE Surrey & Anr v Waverley Borough Council. Case Number: C1/2018/2826