The two unsecured homes, on the corner of Maude and Ernest streets at Belmont, sit on a site previously approved for a $6.9m multi-storey apartment complex with a commercial space on the ground floor.

Instead, they've become home to squatters and a dangerous playground for children, after one of the houses was significantly damaged in a fire in September last year.

Magnus Halland, who lives near the ramshackle houses, said he thought the fire would have been the final straw for their demolition.

"We've mentioned it to the council and filed a report with our safety concerns, they've investigated, the owners are apparently not communicating with them or anyone else," he said.

"They're wide open, there's no doors on them, no fencing, and basically kids being curious are going in and out and being exposed to God knows what.

"There's been squatters in there, it's overrun with trash, drug paraphernalia, syringes, it's not good."

A search of Lake Macquarie council records show the properties are owned by Ernest Street Development.

The apartment complex was approved in 2019, but there has been no building progress since.

A Lake Macquarie council spokesman confirmed it had received three complaints in the past 12 months about the property, and said there was the potential presence of asbestos in the buildings' eaves.

"We've previously contacted the property owner in relation to neighbours' concerns, and were told the site would shortly be redeveloped," he said.

"However, with no development taking place, council has today [Wednesday] issued a Notice of Intention to Serve an Order.

"If the property owner doesn't take action within 28 days, we will issue an order to demolish the building."

The Newcastle Herald contacted the developer about the future of the properties, but did not receive a response.

Jim Clarence has lived across the road for the past eight years and said that, after the DA was approved, the properties were rented out sporadically until 2020.

After that, the condition of the houses went significantly downhill, he said.

"I think they got to the stage where they were uninhabitable, we had squatters move in there and it got worse and worse," he said.

"Someone took out the window next to the door, punched a hole through the door, we suspect there was drug dealing going on in there as well.

"The place slowly but surely has become overgrown, anything worth taking has been stripped and there's grass a metre and a half high with rats coming out across the road."

Greg Forbes has lived on Maude Street for more than two decades, and says the buildings need to be cleaned up.

"It's an eyesore, I can tell you," he said.

"Even the footpath is overgrown, the grass is like a metre high, the garbage bins are chock-a-block and overflowing.

"It's just a disgrace, really."

The council's notice of intention will include a requirement to make the site secure to prevent people entering the homes.