Environmentalists have been fighting for years to preserve the privately owned volcano.
Geoscience Society president Dr Adrian Pittari said it was the "best preserved tuff volcano in Auckland with the best example in New Zealand of a lava lake that has partly drained back down the volcano's throat at the end of the eruption".
The Self family trust, which runs a privately owned 106ha beef cattle farm on the ancient low-rise volcano, wants to allow homes aimed at low- and middle-income earners.
A trustee who is also the family's accountant, Roger Clark, had appealed to councillors to allow the housing to help meet South Auckland's desperate shortage of affordable homes.
"If Auckland is not going to grow in areas like this, where are people going to be housed?" he asked.
The decision was made after only one speaker on the issue, Dick Quax, said the area would not be carpeted with houses, and most of the land would be protected.
Councillors voted 13-4 to reject a recommendation to extend the rural urban boundary north of Long Bay into the Okura estuary and rezone 130ha for housing.
The decision is on hold, pending more information on reasons for the decision and alternative provisions.
Albany councillor Wayne Walker said the Okura estuary was one of the most significant estuaries in the Auckland region, which is relatively uncontaminated.
"Overall the number of homes is not great. We are allowing intensification almost everywhere and not getting much back in the way of environmental gains," Walker said.
Concerns about badly designed houses have led to controls being tightened up in the Unitary Plan.
Auckland councillors voted this morning to reduce the number of dwellings allowed to be built in the mixed housing zones as of right from four to two.
This will mean anyone building three or more houses in these zones will require a resource consent and the checks and balances that go with that.
They rejected a recommendation from the hearings panel to allow up to four dwellings to be built in the mixed housing suburban and mixed housing urban zones - which make up the majority of the existing urban area - without a consent.
The decision was taken without any debate.
Officers said there is a high risk of poor design outcomes from the panel's proposal.
In an email to councillors, Auckland 2040 spokesman Richard Burton said more than 90 per cent of new residential developments in Auckland were for four or less dwellings.
