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Eight neighbours have lodged submissions in opposition to the proposal, sighting concerns about the size of the building, lost views, sun and privacy, and traffic impacts.
And a council planner has agreed, recommending consent be declined because the negative impacts of the development were not able to be overcome.
Dunedin planner Don Anderson, representing the developers, yesterday told the Otago Daily Times he was "disappointed'' by the recommendation.
The village was to be marketed as an "alternative residential option'' targeting those aged 65 and older, who could still live independently.
Demand for single-person units was predicted to increase significantly as Dunedin's population aged, which was the "target market'' for the development, he said.
Instead, the council was applying district plan rules that were "20 years out of date'', he said.
"The world has moved on.''
Under the development, the former Highcliff Rd bar, which closed last year after more than 90 years in business, would be converted into 25 self-contained retirement apartments over two storeys.
The Highcliff Rd frontage of the building would be single storey, with the Bone St frontage spread over two storeys. Plans also included a two-level glass atrium and 26 car parks.
The old bar would be reused as a clubroom for residents and their guests, as well as members of the public who paid for a membership.
The proposal has attracted 10 public submissions, eight of which were opposed and two neutral.
Among them was one from Bone St resident Joan Currie, who said traffic in the area was already of "extreme concern'', and the development would only make matters worse.
Mel and Jeremy Forlong, of Highcliff Rd, said the development would result in them losing all their afternoon and evening sun, sea views and privacy.
Balconies for the second-floor units would look directly over their fence, the couple said.
Peter and Mhairi Jones, of Bone St, said the development would be much larger than the existing tavern, would tower over nearby houses and be a "major eyesore''.
They were not opposed to the type of development, just its scale, which would present a "10m wall'' to Bone St neighbours.
Council planner Melissa Shipman, in her report to the council's hearings committee, recommended consent be declined.
The site was in a residential 1 zone, but the development - with 25 residential units and a licensed premises - did not qualify as a "community support activity'', as it did not include rest-home level care.
That made it a non-complying activity under district plan rules for the zone, and the building would have a "significant'' detrimental effect on surrounding properties, she said.
There also remained "uncertainty'' about the operation of the clubroom, she said.
The proposal represented an "over-development and over-intensification'' of the site, without the ability to remedy its impact, she said.
The application will be considered by the council's hearings committee - Crs Andrew Noone, as chairman, Lee Vandervis and Andrew Whiley - on March 16.