A multi-storey car park would have been approved if the City of Launceston council was able to.
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Proposed by the Harrison Group, the car park would have included 288 parks across seven levels at the Gasworks on Willis and Boland streets.
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However, because the Tasmanian Heritage Council said the proposal did not meet the scheme due to its height and proximity to two heritage-listed buildings.
Therefore, the THC was unable to support the development application which meant the council also had to refuse the proposal.
The site's owner and developer Ross Harrison hit out at the THC's recommendation.
"This development has had very strong support from the Launceston City Council," he said.
"Launceston needs this project for the vibrancy, sustainability and diversity culture of our magnificent city."
Mr Harrison said he had spent millions salvaging the historical site and redeveloping it.
"There were no representations made against the development application. There is strong support from the council heritage works manager."
He said after an initial application for an eight-storey, 400-space application was refused, he reduced the plan to seven levels and 288 spaces. This added another five years to the break-even return on investment.
"The legislation is disgraceful, it does not give Launceston City Council or the developers a fair go on heritage-listed properties," he said.
"I'm asking the City of Launceston council to support the development and if this development cannot go ahead to support a change in the legislation."
Nearly all of the councillors said they would have voted for the proposal to be approved, but were not legally able to.
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Council chief executive Michael Stretton said the council had sought legal advice and they had no other option than to refuse the development.
Deputy mayor Danny Gibson said the council's hands were tied and thanked Mr Harrison for sticking with the development.
"We need this for our city," he said.
Mayor Albert van Zetten said Mr Harrison was "quite serious" with his remarks, and THC issues were something that needed to be worked through.
However, the THC said a car park at the site was still possible. THC chairwoman Brett Torossi said the council was supportive of the adaptive reuse of the Gasworks site.
"'In October we approved the development of a proposed art gallery for the site and appreciate the benefit of constructing a car parking facility to further support the activation of the site," she said.
"Getting the right scale, position and detailing for any new buildings to be developed within the site is critical to protecting the heritage values of this place."
The buildings, engineering works and infrastructure in the Launceston Gasworks site demonstrate the traditional methods of gas production that were widespread throughout Australia but are now increasingly rare, THC said.
"The Heritage Council concluded that the plan presented to it would introduce a building of size and appearance that would detract from the heritage values of the Launceston Gasworks," Ms Torossi said.
"The direct impact relates to the height of the proposed building and its close proximity to two of the heritage buildings at the place - the Carburetor Water Gas plant building and the Gasholder frame."
Ms Torossi said the proposed fabric for the car park's exterior was also not the best fit for the area.
Mr Stretton said the applicant and the THC had arranged for a meeting next week. The THC is hoping to negotiate a "more acceptable" solution.
An art gallery for the gasometre structure has already been approved.
The car park was unanimously refused.
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