Trinity Hall, a three-storey former student residence at the junction of South Street and Sidmouth Street in Reading, has been empty since 2014 and suffered arson and vandalism.
Developer Hanslink applied to convert and extend the building into 18 homes: one three-bed, ten two-beds and seven one-beds.
Reading Borough Council refused the scheme over the lack of affordable housing and the scale of the development.
Hanslink appealed and won. Planning inspector Nick Davies accepted the developer's argument that affordable housing couldn't be provided up front for viability reasons and backed a financial solution instead.
Mr Davies wrote: The appellant's unilateral undertaking would secure obligations requiring a financial contribution of £100,000 towards off-site affordable housing, together with a late-stage review mechanism (LSR).
The LSR means if the scheme later makes a surplus, a deferred payment towards affordable housing could be collected. The council says these obligations remove one reason for refusal.
Mr Davies also found the revitalisation and extension would not be visually dominant.
Both Hanslink and the council sought legal costs during the appeal. Mr Davies ordered the council to pay Hanslink's costs after the hearing on March 24.
Steve Vigar, the council's planning applications team leader, said: "Although it was disappointing to have the appeal allowed, the inspector's support of the demonstrable need for affordable housing in the borough is welcome, also, importantly his support of the council's approach to securing affordable housing contributions through a deferred payment mechanism should financial conditions improve during the course of the development."
The project is now approved under reference PL/24/1079 and was noted at the planning applications committee on April 29.
James Aldridge, Local Democracy Reporter
