And, as a result, it could also boost the city's appeal to international students in an ''increasingly competitive market'', Paul Westwood, the University of Otago's senior academic dean of students, said.
Hawkdun Properties Ltd - headed by property owner and businessmen Alistair Broad - has applied for consent to build 19 flats around the former ''fever hospital'' beside Logan Park.
If approved, the ''significant'' development was expected to cost about $4 million, excluding land costs, and provide 80 rooms for students wanting to live in the area, Mr Broad told the Otago Daily Times yesterday.
He was speaking minutes after a consent hearing before independent commissioner Allan Cubitt was wrapped up in less than two hours yesterday morning.
The development would surround the former Pelichet Bay Infectious Diseases Hospital and morgue, which was built in 1908 and was a category 1-listed historic place.
The former hospital building had been home to students since being bought by the university in 1952, and on-sold to Hawkdun Properties in 2011.
Plans to add new flats around the old building were opposed by consultant planner Nigel Bryce, who recommended consent be declined because of reverse-sensitivity concerns.
He worried a proposed ''no complaints covenant'' was not comprehensive enough to prevent future tenants from complaining about noise from a nearby quarry operated by Palmer and Son Ltd.
However, Mr Bryce reversed his recommendation yesterday, to endorse the granting of consent, after hearing Palmer's representatives had drafted a more robust covenant that was acceptable to Hawkdun Properties.
Heritage New Zealand also supported the development, saying the site's ongoing use would ensure its protection, Otago-Southland area manager Jonathan Howard said.
Mr Broad, the husband of city councillor Hilary Calvert, earlier told yesterday's hearing he had watched the market move over 35 years as a student landlord in the city.
Students who once had ''toilets at the bottom of the garden'' now wanted heat pumps and dishwashers, and warm, modern, well-run flats.
''We cannot afford to take our university or our students for granted, and it is important for landlords and for Dunedin that we provide warm and cosy homes for the students who come here.''
Mr Westwood, in a letter to yesterday's hearing supporting Mr Broad's plans, said the development - close to the university and Otago Polytechnic campus area - could also help boost the city's share of international students.
The flats could become part of a ''unique selling point'', providing a package of accommodation, pastoral care and study courses aimed at international students, he believed.
''A package including accommodation, pastoral care and appropriate course of study would provide a unique incentive above and beyond what is normally offered in other competing cities and provide a unique selling point for anyone wishing to come to Dunedin to study.''
Fiona Broad, a director and shareholder of Hawkdun Properties and Mr Broad's daughter, said the company was already considering Mr Westwood's proposal as one option for the flats.
Mr Cubitt adjourned the hearing yesterday and asked for the final wording of any consent conditions to be agreed within two weeks.
He would then decide whether it was necessary to reconvene the meeting before issuing a final decision on the application.
