The 2.5-hectare site of the old Bulli Hospital in the northern Illawarra region is to be converted into housing by state housing provider Landcom.
The former hospital was closed in 2020, bringing 130 years of history to a close, and was rebuilt across the road as the new Bulli Hospital and Aged Care Centre.
Landcom said housing supply and affordability was a key issue for the region, so a proportion of the new development would be for essential service workers.
Landcom acting chief executive Matt Beggs said the number of dwellings would depend on planning controls on the site.
"We need to undertake a process of obviously preparing the site, we'll need to undertake all the work with council and the local community on obtaining the approvals," he said.
"The final number of dwellings will be informed by the process that we go through, it will all comply with the relevant planning controls, which allows for low- and medium-density development."
He said a minimum of 10 per cent of the housing that would be produced on the site would be allocated for affordable housing.
Housing Trust chief executive and Community Housing Industry Association chair Michelle Adair said she was delighted Landcom was developing the site, as they had a wonderful record of good design and quality builds.
But she would like to see more of the homes set aside for low-cost sales and rentals.
"What we tend to get from Landcom in their other developments is only five per cent affordable rental housing about five per cent affordable purchase, which means 90 per cent of the housing is not affordable by their own definition," she said.
"We have just got to do better as a community.
"So I am going to have another conversation with Landcom and say how do we get at least 20, preferably 30 per cent of the homes that are going to be delivered on this site available to our community as affordable rental."
