The Beehive, in Curriers Lane, closed in 2017 and has since suffered a spate of anti-social behaviour, with broken glass and rubbish discarded in the disused car park and the building itself broken into.
But it is now set to be bulldozed under plans for nine affordable homes to be built on the site.
The development, to be managed by Housing Plus Group, will include six affordable rented properties and three to be marketed as shared ownership. The houses will be built in three terraces.
Shifnal Town Council objected to the proposals, saying while it supported the principle of the development, the layout was not in keeping with the area.
In a statement read to Shropshire Council’s southern planning committee, the town council said the middle terrace should be rotated so the properties fronted onto Curriers Lane.
A statement was also read from Scott Drummond of TC Homes, the developer which has partnered with the housing association to build the properties.
Mr Drummond said: “The pub has now been closed for several years and has become an eyesore and a health and safety issue in the area.
“At the end of Curriers Lane is Shifnal Primary School so this area gets a lot of foot traffic, and at the moment the pub has an open car park which has broken glass and is a danger to young children and could encourage anti-social behaviour.
“The pub has been broken into several times and has been vandalised including being used as a place to sleep overnight.”
He said the scheme would help to address a “very high demand for affordable houses” in the town.
Councillor Tony Parsons proposed granting permission, saying: “We know from the (planning officer’s) report that there’s a big demand in Shifnal for this type of housing, with over 200 households on the waiting list.”
Councillor Nick Hignett added: “I don’t think it’s a perfect layout, I think they have had to shoehorn it in, but I think they have done the best that they can and the affordable housing will be very welcome.”
The committee voted unanimously to grant permission in line with planning officers’ recommendation.