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Plans to demolish a former hospital wing to make way for 200 new homes are expected to be finalised in the coming months.
Developers want to build a new housing estate on 15 acres of land next to St Martin's Hospital in Canterbury.
Homes England last year forked out £6.2 million to buy an old Victorian wing of the mental health facility called Cranmer Ward, which had been deemed "no longer fit for purpose" by the Kent and Medway Partnership Trust.
The authority - which runs mental health provision across the county - described the old buildings as being "truly remnant of the asylums of the early nineteen hundreds".
They now sit empty after patients were moved to different wards at the hospital site in Littlebourne Road.
Architects are drawing up blueprints for the housing scheme, and have asked the council if they need to submit a report on how the project will affect the local environment.
Developers expect to lodge an official application detailing the full proposals sometime later this year, and will be hopeful of success given the land is earmarked for housing in the council's Local Plan.
But if the scheme is approved, the new estate would sit opposite a 500-home development at the old Howe Barracks - resulting in hundreds of more car journeys up and down one of the city's busiest roads.
Agents commissioned by Homes England, however, argue Littlebourne Road would be able to cope with hundreds of more residents.
"The former hospital use was a major employer and generated significant traffic movements associated with staff, patients and deliveries," they say.
"The scale of proposed development is unlikely to give rise to significantly greater impacts compared to the lawful use as a hospital. The level of net traffic generation resulting from this development is unlikely to be significant and could be adequately accommodated on the surrounding highway network."
It is not yet known how many of the old Cranmer Ward buildings - built at the turn of the 20th century - will be knocked down.
The city council, which is currently well shy of its housebuilding targets, is pleased developers are formulating plans for one of its site earmarked for housing.
Spokesman Rob Davies said: "This is a site allocated within the Local Plan and therefore we support the principle of housing development at this location."
According to the Kent and Medway Partnership Trust, "every single penny" earned from the £6.2 million sale of land is being pumped into its health services, including revamping its existing ward at St Martin's.