Hundreds of homes are expected to be built on the Stockton Centre site, following an audit of surplus government-owned land.
The former residential centre for people with disabilities is one of 10 sites the state government has earmarked for development, but the only one outside of Sydney.
Landcom, the state government's land and property development arm, is in the process of doing due diligence on the site to determine the final mix and quantity of housing, but it's estimated the 84-hectare block could hold up to 500 homes.
"A broad mix of housing will be considered which could include detached dwellings, terraces, and townhouses, among other housing types," a Landcom spokesperson said.
The Stockton Centre was closed in 2021. In March this year, the state government announced $2-million 'meanwhile use' proposal to refurbish seven homes to provide temporary accommodation for up to 25 people.
The government insists the refurbishment will go ahead, and the contract was recently awarded. The works are expected to be completed by the end of the year and home to people in early 2025.
The site will be required to be rezoned before a development application can be lodged for the larger housing project.
Property Council's regional director for the Hunter, Amy De Lore, said the announcement was a great step forward in addressing the housing crisis, particularly in a growth area like Newcastle.
"We hope this announcement gives impetus to finding a longer term use for the site that will provide much-needed housing for the community," Ms De Lore said.
"We acknowledge that the site is currently being used to provide vital support for those in need of temporary accommodation. It's important that government and industry work together to find solutions that provide permanent housing stock while ensuring those who need interim support aren't left behind."
The 10 sites announced for development are expected to yield 1100 houses, with the Stockton site being the largest.
NSW Premier Chris Minns said more tranches of land would be released in coming months.
"Getting more homes built for families in well-located areas is top priority for our government and releasing surplus land for housing is a key part of our plan to make this a reality," Mr Minns said.
The Stockton Centre development will be bordered by at least one large housing development to the north.
Early this year, the Defence Housing Australia submitted a development application for 232-houses on the old rifle range.
DHA has also previously flagged the Fort Wallace site south of the Stockton Centre could eventually be home to 100 dwellings.
The Minister for the Hunter and Swansea MP, Yasmin Catley, said the community would be consulted at every stage of the planning process, including the rezoning.
"We want to get this right, we know it will take some time," Ms Catley said.
Newcastle MP Tim Crakanthorp said Labor was committed to the "delivery of 30 per cent of social and affordable housing across the board".
"Newcastle is currently experiencing a housing crisis, and we desperately need more supply. This area is perfect for more housing for local families," he said.
"As a father of four, I would love to see my kids be able to stay in Newcastle, buy a home and raise a family of their own here."
