Islanders have reacted with disappointment that public funding has been withdrawn from the Leale's Yard housing development in The Bridge.
Landlady of the Mariner's pub nearby, Gemma Reardon, described the move as "ridiculous", saying it was a missed opportunity to increase footfall in the area.
It comes after the states said it would pull £35 million for the regeneration plans.
Had the plans gone ahead, 300 new affordable homes would have been built on brownfield land in St Sampson's.
Ms Reardon said: "I think sales would have gone up absolutely everywhere."
She said housing was her chief concern however, at a time when homelessness was an increasing problem on the island.
She added: "I don't think they should have ever pulled any social housing being built because it's not fair on the people who need housing at the moment.
"There are locals who are living in their cars and tents and its not fair and not on."
Ann Mourant who co-owns Beekers card shop is among the businesses who say the project would have boosted trade in the area.
Mrs Mourant said: "It would have brought more custom to The Bridge so it is a bit deflating.
"It's disappointing, because now what is going to happen to the building site at the back?
"It's a big community – we need to keep the Bridge going."
'Continue to invest'
Adrian Dilcock, senior constable of St Sampson's Douzaine said it was a blow for the area but he hoped it wasn't the end for the plans.
"We regret and are disappointed there is a delay. It is important that it goes forward in due course and we hope that the developers regroup and find a way forward," he said.
The States Assembly had agreed in principle to invest up to £35m in The Bridge regeneration project spearheaded by the CI Coop and developers Omnibus.
President of Policy and Resources Deputy Lyndon Trott pledged the government would continue to invest resources in "other projects and initiatives as part of the wider Bridge regeneration" including improving flood defences.
