A local council has been told that building 2,000 new homes in an area of a seaside town would be "unviable".
Consultants Entec UK said any more than 100 homes in south east Rhyl would involve huge infrastructure spending.
Vale of Clwyd MP Chris Ruane said: "This shows there has been lack of effective consultation."
Denbighshire council said the proposals for Rhyl were part of its Local Development Plan (LDP), and that no final decisions have been made.
Mr Ruane said that he and local councillors had "repeatedly raised concerns over the possible impact on infrastructure and any flooding implications.
"I am pleased that the consultants have acknowledged the problem of any potential large scale development in Rhyl," he said.
Capital investment
John Hall from Entec UK carried out a feasibility study into a large-scale housing project in the town.
"Various scenarios had been tested but that anything larger than 100 dwellings would have very large infrastructure costs and wouldn't be viable in the current climate," he said.
"These are rough costings, but we don't expect them to change much," he said.
Denbighshire council has said that the LDP covers projects up to 2021, and that no final decisions have been made.
In a statement, though, the local authority said the current economic climate meant "the full development of the Rhyl site appears unviable without some external capital investment.
"This does not make the Rhyl site unviable, as external capital funding could be sought, additional research and information gathering over the coming months could generate a different conclusion."
A further consultation stage on the LDP is scheduled for summer 2009.
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