The midfielder joined Villa on a season-long loan with an obligation to buy conditional on appearances, but Emery said the club has deliberately avoided selecting Elliott to prevent activating the permanent transfer clause.
The 22-year-old, who won the Premier League title with Liverpool last season, has not played a league game for Villa since September while his last appearance was as a late substitute in the Europa League in October.
"The problem we have with Harvey is this year he is on loan and in case he is playing matches, we must buy him," Emery told reporters when asked about Elliott's absence from Villa's matchday squads.
"We decided two months ago we are not convinced to sign him, spending the money we need."
The Spanish manager acknowledged the awkward situation has created problems for all parties involved, despite Elliott's professional attitude during the impasse.
"I am respecting him all we can because he's a very good professional, very respectful but the situation we have is something," Emery said.
"He is training every day, very good with us to help us in training and of course it is not good for him or good for us. But it is football and sometimes we must take decisions that are not good for us."
Villa are third in the standings, six points behind leaders Arsenal ahead of Saturday's home game against Nottingham Forest.
However, Villa also have a number of players sidelined with injuries, with Tyrone Mings, Pau Torres, Amadou Onana, Ross Barkley, Evann Guessand and new recruit Alysson all unavailable for the game.
“When they are expected to come back with the team, I don’t know," Emery said. "Onana got injured on Tuesday, Pau got injured one month ago. Pau may be out for one or two weeks and Mings as well. Onana, more."
"We are playing three years in a row Premier League, (in) Europe, cups -- 55 matches. Hopefully again we will play more or less 55 matches. Then you have players with international teams as well.
"Through this demand, of course it increases the risk for injured players. We must be ready with the players we have... But, still enough players to compete."