When Tom Courtice and Julliette Begg bought a block of land in the heart of Victoria's popular Alpine region two years ago, they had big plans to expand their small business.

Their parcel of land sits on the established retail strip in Tawonga South, next door to a brewery, and on existing zoned land.

Despite this, their development application to build a bakery and townhouses has been stalled, because the local water authority can't supply the water or sewerage services.

Mr Courtice, who has a background in planning, said in his experience the situation was "unprecedented by a water authority".

"As a planner, you normally wouldn't consider the water authority to be a big risk. It should be a given that they can supply land that is already zoned," he said.

The couple say the water main runs along the boundary, but they have been told there will be no connections to any new buildings.

And they have no clear timeframe for when the issue might be resolved.

"Their advice is that their infrastructure is at capacity, so they are not going to approve any new applications for connection to either the sewer or potable water supply," Mr Courtice said.

"We're a bit flabbergasted, I guess.

"It has a huge impact on the economy when there is a lot of building happening."

He said a lot of houses were being built in the area, but "all that is going to come to a grinding halt".

Case by case

Alpine Shire councillor Tony Keeble described the issue as "not really good enough".

He told the ABC that council would "likely be unable to approve development and subdivision proposals that require additional capacity or new potable wastewater connections" until North East Water resolved the capacity constraints for potable and wastewater treatment across the three towns.

The start date council has been given for the work to increase the potable water and sewage capacity to Mount Beauty, Tawonga and Tawonga South is in the 2026-27 financial year, with completion by June 2028.

"It means our residents, especially in the Upper Kiewa Valley in Mount Beauty, Tawonga, Tawonga South, who are wanting to do development at the moment — given that North East Water are the determining authority for planning for water — they won't be able to do that."

He said that council had been advised that North East Water would consider future developments on a case-by-case basis and anyone wishing to apply should contact them.

"But no one knows what that actually means, case-by-case, and how they're going to connect those properties," he said.

"It is a problem. Because North East Water is the determining referral authority. That is their responsibility to provide that service. That's their role."

Cr Keeble was unable to put a figure on how many potential developments would be hit, but said it was not big housing developments but those looking to build their own homes.

"We're not talking about extending township boundaries, it's just within the current framework of someone wanting to build a house for their family to live in town there," he said.

Short-term improvement hopes

North East Water's General Manager of Water and Infrastructure, Guy Wilson-Brown, said the aging infrastructure in the three towns had reached capacity.

It follows the water authority indicating support to Alpine Shire Council for a proposed 82-lot development in Tawonga South.

"However, because of that, to support our existing capacity constraints, we're not approving additional connections until essential infrastructure is upgraded. 

"Or short-term operational improvements can be made that will allow these smaller developments to be approved in the near future."

The water authority is encouraging anyone planning to put forward a development application in these regions to "have a conversation with them" first.

"We are continuing to investigate short-term improvements in the next 12 months to try to find some extra capacity so we may well be able to approve these smaller developments ahead of 2028, hopefully by next year," Mr Wilson-Brown said.