JCL UK Ltd is putting up a four storey-building with 11 flats on the site of the former Contented Pig pub, in Fratton.
The company was told it had to include three affordable homes.
But it submitted a bid to the council to get out of its responsibilities to include the cheap homes as it did not believe the development would make money otherwise.
A council spokesman said: ‘The planning committee did not agree to remove the requirement to provide three affordable flats. But it gave officers authority to negotiate a way forward that would still help people looking for lower-cost homes to rent, and ensure the new building can be fully occupied.
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‘The council is proposing to allow the three flats to be rented at a “below market” level.
‘This may mean allowing higher rents than “affordable” housing, but still lower than open-market properties.
‘To prevent homes staying empty, we are prepared to suspend a restriction that would have stopped some of the open-market flats being rented until the affordable flats had been made available.’