I do vaguely remember something about only turning it down on these grounds if there was a concern that there was likely to be overcrowding. So it looks like it can largely come down to discretion. That was the old rules anyway but then you applied under those?
This would back up the theory about more people in the property being a concern for this ECO. But again, I remember something about requesting more evidence if their was any concerns on this front? Although I suppose there is probably no need to do that if they're also turning it down on other grounds as well? I suspect if this was the only issue, the visa would have been granted.