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New Zealand Transport Agency project manager Simon Underwood, of Dunedin, said the demolition of the Caversham Valley Rd house would give better access as contractors prepared to carry out geo-technical investigations in the area.
The vacant and dilapidated property had been targeted by vandals and, recently, a fire was lit inside, he said.
NZTA had spent about $2.5 million to buy 20 properties which line the south side of the road.
Demolition work on the remaining 19 properties would not take place until after the Dunedin City Council had granted a notice of requirement for the highway upgrade to proceed, Mr Underwood said.
NZTA has yet to lodge the notice - effectively a resource consent application for alterations and designation changes required for the upgrade, which is the second stage in the planned redevelopment of the state highway at Caversham.