The NSW government had proposed to buy Rosehill Racecourse in densely populated western Sydney in a potential $5 billion deal and turn the 140-year-old track into a mega housing metropolis of about 25,000 homes.
But despite being backed by executives of the Australian Turf Club, which owns the site, more than 55 per cent of the club's 11,000 members voted against the pitch on Tuesday evening.
A disappointed Premier Chris Minns would not be drawn on a "Plan B" after the failure.
But he has insisted bold reform is required to tackle the housing crisis.
His government would not rule out on Wednesday another controversial plan - moving Glebe Island Port and developing housing in that area on the Sydney Harbour.
Transport Minister John Graham, who is responsible for the port, said the government was not ready to make public announcements on the proposal but reiterated its desire for big housing plans around metro stations.
"This is the biggest lever the government can drive ... to change Sydney as a city and make it more welcoming, especially to young people," he said.
"I'm keen to see that housing closely related to transport."
The opposition said that need for more housing had to be balanced against industry's needs.
"When it comes to the cost of cement and aggregate, there could be a huge impact for the building sector across NSW if those cement terminals were moved from Glebe Island," planning spokesman Scott Farlow said.
Western Sydney Leadership Dialogue chairman Chris Brown called for an ambitious redevelopment of the 430-hectare Sydney Olympic Park precinct, turning it from an events-based destination to an "integrated, connected and liveable city."
"It should be Australia's first high-rise suburb, with thousands more homes surrounded by parklands, smart jobs, universities and tourism attractions," he said.
A spokesman for the Australian Turf Club said plans to sell land near Rosehill to stem the club's financial losses could be revived again after the vote.
But it would be an "open-ended exercise".
"There are parcels of land around Rosehill Gardens that potentially could be sold to developers," spokesman Brett de Vine told AAP.
"But they wouldn't reap anywhere near the amount of money that the $5 billion (government) acquisition would have would have secured."
Outspoken Liverpool Council mayor Ned Mannoun pitched his local government area as the site for "one of Australia's most significant urban renewal projects" after the Rosehill debacle.
"With the stroke of the premier's pen, Moore Point and surrounding precincts could unlock up to 20,000 new homes - a transformative opportunity for western Sydney," he said.
NSW has approved about 45,000 homes in the past year, about 40 per cent below the rate needed to achieve its portion of the five-year national housing accord.
The accord aims to build 1.2 million well-located homes across Australia by mid-2029.
About 116 housing proposals amounting to more than 45,200 potential homes have recently been declared state significant to fast-track their construction.
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