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Habit for Humanity announced yesterday it had purchased the Kew Bowl site from the Invercargill City Council.
The intention was for the site to be used for an affordable, mixed-use housing development.
However, the numbers and the types of houses to be built would be decided after consultation with the community.
Southland Housing Action Forum chairman and Southland Chamber of Commerce board director Shaun Drylie said the purchase was a positive way to address the issue.
''It won't go far enough but it is a good start. It will take a bit of time to do the planning, to build dwellings and properties.
''What is good for Invercargill residents is to know that something has been done, but obviously it will need a lot more.''
In November, Southland Housing Action Forum released a report which showed housing demand ''significantly exceeds existing housing stock.''
It stated Southland needed 2800 houses in 12 months to address the region's growing housing crisis.
Mr Drylie believed some improvements in the region had been made with the inner-city development and other projects, but ''the shortage hasn't gone away.''
Habitat for Humanity Invercargill general manager Paul Searancke said the new development at the Kew Bowl site would be made up of public housing, homes for first-home buyers, secure tenure rentals and homes for market sale.
''We are very excited for the potential this site has to make a difference in such a tight housing climate. A community consultation process will begin at the end of June and run for two months to ensure the needs of the wider community are met.''
He said it was still too early to predict how many houses would be built, as they would start the design work after the consultation.
Mr Searancke did not want to reveal the tender values.
Invercargill City Council bought the Kew Bowl site from the Southland Amateur Cycling Association in 2006 to assist the development of the indoor velodrome at Surrey Park.
The site, which is about 1.6ha, had not been used since the indoor velodrome was built.