A council report has acknowledged septic tank systems used by homes in the area were not working, leading to poor water quality in the Blanket Bay catchment that posed a "demonstrated health risk".
The problems were due to the small size and poor drainage conditions of sections in the area, and there was a "clear and demonstrated" need to improve wastewater disposal in both settlements.
The conclusions were contained in a report by council programme analyst Madelaine Wiese, to be presented to next week's infrastructure services committee.
In it, she said five of seven properties tested at Blanket Bay, and two of five at Curles Point, had been found to have discharges making their way into the water table or a nearby creek, and ultimately into Otago Harbour.
Residents have long argued smells in the area were from failing septic tank systems and discharges on to the foreshore.
In February, they gathered a petition signed by 93 people calling for homes in the area to be connected to the city's reticulated wastewater service.
However, council staff in July asked for more time to investigate the claims, saying they were "not assured" failed septic tanks were entirely to blame.
Contacted yesterday, Chalmers Community Board chairwoman Jan Tucker said she was pleased the latest report acknowledged residents' concerns after "a seven-year battle".
"We have raised this matter at annual plan [hearings] for a number of years... I'm finally glad they have acknowledged there's a problem. People there are finally being listened to and there's been action."
The report, to be considered next week, outlined a mix of private and council-implemented solutions and estimated costs.
A new reticulated wastewater connection joining homes to the city network was the most expensive option possible, at an estimated cost of $480,000.
Alternatively, residents could be asked to band together and jointly use adjacent land to dispose of wastewater, or store it in a new facility for collection by tanker.
More investigation of the options was needed before consulting property owners, the report said.
Councillors would also have to decide how to split the cost between residents and the council as part of cost-sharing outlined in the council's reticulated utility services policy.
A preferred option and costs would be presented to the committee after consultation.
