Edgartown will appeal a decision handed down last week by the state Housing Appeals Committee, which removed town-imposed conditions on a contentious 11-home development in an environmentally-sensitive area off Watcha Path.

The Cozy Hearth project was proposed by a group of Vineyard residents who banded together to build housing for themselves using Chapter 40B — a state law that allows affordable housing projects to skirt most zoning regulations.

The plan was to build 11 single family homes on 10.9 acres, in an area zoned for three-acre parcels.

Three of the homes would have been affordable housing.

The town believes that the proposal is an attempt at so-called zoning-busting, using the inclusion of affordable homes as a way of circumventing normal rules to allow the construction of houses in an area where they otherwise could not have been built.

In February 2006, the Martha’s Vineyard Commission approved the development with conditions.

The matter then passed to the Edgartown zoning board of appeals, which after a two-month process of public hearings imposed further conditions, most notably a reduction in the number of homes to be built from 11 to 9.

Cozy Hearth argued the conditions — which also include the construction of a new road to the site, a 10,000-gallon cistern for firefighting, new turnouts and other works on Watcha Path — made the project uneconomic.

The appeals committee accepted that the conditions rendered the project “uneconomic under any standard.”

The committee then examined the conditions the zoning board imposed.

The board argued the extra two houses would increase the danger at the already dangerous intersection of Watcha Path and the Edgartown-West Tisbury Road. The committee accepted the intersection was dangerous, but did not see the extra two homes as increasing the danger enough to overcome the need for extra affordable housing. The committee did back the board’s condition that a water cistern be built.

But the argument on appeal is not likely to be over individual conditions imposed by the zoning board, or even whether they would have rendered the project uneconomic, so much as whether it was ever intended to be economic, given that the proponents were not motivated by profit but be creating housing for themselves.

“We think this decision by the Housing Appeals Committee, which always upholds these projects, is wrong on a matter of law,” said Edgartown town counsel Ronald H. Rappaport.

“Specifically, this project was never a classic development. It never made economic sense. The conditions the board put on it did not make it uneconomic. It was always uneconomic.”

He said the issue of people using the 40B exemptions in this way are not just relevant to this case, but to the broader, statewide issue of people using them to get around zoning laws.

“It’s not just [relevant to] Edgartown, but to all Island towns and all small towns. There are legitimate public safety and other concerns which the zoning board raised and we do not like having a project shoved down the community’s throat in a place where it doesn’t belong. We think the wrong legal standard was applied by the Housing Appeals Committee and we intend to pursue it to a higher court.”