That sounds utterly ridiculous. People can't always know what house they will be living in in September the following year. Applications close in January but are open from the autumn term. That's asking people to know nearly a year in advance what their circumstances will be. Even if the application is made in the January, that's still 8 months before they're due to start school.
Obviously if someone was to move far away after the application, they would need to turn down the place and arrange a late application elsewhere. If they've moved to a new home within the area and can still get to the school, they absolutely shouldn't be punished for this. As long as it's not a fraudulent application, ie they can prove they actually did live at that address at the time of applying, they shouldn't be punished for this. Even if someone knows they are likely to move, people have no way of predicting when the actual move will go through and therefore can only apply for their current circumstances at the time, not what they think their circumstances might be 8 months down the line.
I have never heard of an area where admissions use such a bizarre policy. I work in an area of high movement. Families in social housing are rehomed frequently for various reasons. Yes the spaces may be allocated to children who end up living a few streets further out than others who missed out at an oversubscribed school, but as long as they were closer to the school than the other families when they made the application they've done nothing wrong. You can't punish a family for their individual circumstances beyond their control.
Look at the situation in reverse. They wouldn't take away a space from a child who has been allocated one, and still lives at the same address, just because another family have since moved into the area and live a bit closer to the school than them. So why would they take a space away from a child who has been given one, based on original address, but has now moved a few streets further out from another child who just missed out at the time of application? It doesn't make sense. Kids would be having their school places swapped all the time.
Are you sure this child was definitely rejected because they changed address? As they were still in catchment, it sounds to me more like they were rejected for not actually having a sibling at the school after all. If they were given sibling preference ahead of other children who lived closer but missed out because they didn't have a sibling already at the school, and were then found out to be lying (as the older child no longer attended the school by the time the younger one was due to start), that would be considered a fraudulent application. They benefitted from the sibling preference rule, when they shouldn't have done. It really sounds like that's more likely why the place was withdrawn, as kids missed out who shouldn't have done. If the application was completed correctly, to show they would have no sibling at the school at the time of starting, they wouldn't have been offered it in the first place based on the original address at the time. Could be that the person was trying to save face by telling others the place was withdrawn because they moved, rather than admit they balls up the application form.