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At its meeting in Wanaka yesterday, attended by more than a dozen Lake Hawea residents, some holding placards, the council pulled back from recommending the 400-lot subdivision to the Government.
The proposal will now "lay on the table" until the council's December meeting, allowing time for staff to carry out further negotiations with the developer, Lane Hocking of Universal Developments, and conduct more community consultation.
The aim is to improve integration between the new subdivision and the existing township.
The move to delay was driven by Arrowtown councillor Scott Stevens who voted against the proposal when it was approved in principle by the council in June.
Mr Stevens said his planning concerns had been resolved since then, but he still "struggled" with how well the subdivision was integrated into "the fabric" of the Lake Hawea community.
He was particularly concerned about how the proposed "retail island" worked with the township's existing commercial area.
Cr Ross McRobie, who voted for the proposal in June, said the "vibes" he had been getting since then were about the community's lack of involvement in the
process, and he believed there was an opportunity to have another discussion.
All councillors voted in favour of the delay apart from Wanaka Community Board chairman Cr Quentin Smith who maintained his stance of being opposed to the development. Deputy mayor Calum MacLeod, who was previously opposed, was absent.
After the meeting, Lake Hawea Community Association development subcommittee chairwoman April Mackenzie told the Otago Daily Times she was more concerned about whether or not the council was following the correct process, laid out by the Housing Accords and Special Housing Areas Act 2013.
"Section 16 of the Act is clear - they haven't proven demand.
"Ringing a few real estate agents in Wanaka ... is not proof of demand in this area."
Under the Act, the minister must be satisfied "there is evidence of demand to create qualifying developments in specific areas".
Don Robertson told the council Lake Hawea residents did not appreciate being "muzzled bystanders watching a half-baked project approved" that would double the size of the township.
He was concerned at the impact on water and sewerage infrastructure and who would pay.
"It's not clear whether the developer or QLDC will carry the can for water supply, sewage and stormwater. Let's hope it's not the council."
The council will recommend to the Government a 281-lot special housing area in Wanaka, proposed by Bright Sky Ltd.