North Melbourne tower resident Barry Berih launched a class action against the Victorian government in January 2024, arguing it went against proper processes when it decided to demolish the 44 high-rise complexes.
Supreme Court Justice Melinda Richards on Friday dismissed Mr Berih's case, saying Homes Victoria must do something to address the ongoing deterioration of the towers and the government's plan "is rationally directed to achieving that purpose".
All the towers are managed by Homes Victoria and they are to be redeveloped by 2051. Five in Flemington, North Melbourne and Carlton expected to be replaced by 2031.
Inner Melbourne Community Legal, which is acting for Mr Berih, said it will review the judgment for any grounds for appeal.
Managing lawyer Louisa Bassini praised his efforts and the residents despite a disappointing result.
"They have been passionate about asserting their legal rights and committed to this process - it has been the only recourse available to have their voices heard," she said.
Mr Berih had sought to have the decision to demolish the towers deemed invalid and unlawful, based on Homes Victoria not offering residents an opportunity to provide feedback, not giving proper consideration and breaching their human rights.
Justice Richards ruled Homes Victoria did not have to give residents an opportunity to be heard, and that it was unlikely a different decision could have made if it had heard from residents beforehand.
The judge found Homes Victoria gave proper consideration to human rights when making the decision, labelling its decision to implement the government's plan lawful, reasonable and justified.
But she accepted the decision limited residents' human right not to have their homes interfered with, by not giving prior notice or consultation.
"It diminished their security of tenure and will disperse the community that is an intrinsic part of their homes in the towers," she said.
The project is a key pillar of the Victorian government's housing statement, which would lead to the relocation of more than 10,000 residents.
Housing Minister Harriet Shing said despite the dismissal, residents will have right of return once the towers are rebuilt.
"The reality is that Melbourne's high rise towers are ageing, reaching the end of their useful life, and need to be redeveloped," she said.
Victorian Greens leader Ellen Sandell labelled the outcome disappointing for the brave North Melbourne and Flemington residents, and said the fight was not over.
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