Port Stephens MP Kate Washington says using the nurses quarters at the disused Stockton Centre for crisis housing is "impossible" after touring the site on Friday.
Ms Washington, then shadow housing minister Rose Jackson, Newcastle MP Tim Crakanthorp and emergency housing providers called last year for the former Coalition government to use two defunct disability centres at Stockton and Tomaree to help ease the Hunter's homelessness crisis.
Ms Jackson said at the time that it was "scandalous to have a facility like the Stockton Centre sitting vacant in the middle of a housing crisis".
Ms Washington, now the Minister for Disability Inclusion in the new Labor government, inspected the Stockton Centre for three hours on Friday with Mr Crakanthorp and said parts of it were "virtually derelict" and unsuitable for housing.
"We were very keen to see with our own eyes what opportunities are there as well as the challenges, and I've got to say there are significant challenges with the site," she said.
"Previously when we were asking the government to look into it, they just said no. They didn't make any effort to investigate what opportunities were really there, and that's what we were doing today."
Ms Washington said the government would continue to "seek out any opportunities that may assist people who are facing homelessness in the current housing crisis."
She said "early indications" suggested Tomaree Lodge, which she also toured on Friday, was even less likely to be used for emergency housing due to its age.
She did not rule out using part of the Stockton Centre but said the two-storey nurses quarters were "in an uninhabitable state".
"While from the outside it may appear to be a possibility, it is one that can definitely be ruled out."
She said government and non-government agencies had a duty of care to ensure housing provided to those in need was safe.
"The nurses quarters and others we saw today were impossible.
"There's so many different challenges, including safety, heritage aspects, but we'll make sure we're consulting with community and emergency housing services to see what they think is possible, alongside the department.
"We're going to be exploring whether some of the other buildings are a possibility of being utilised in the short-term."
Asked whether the government could spend money on bringing the Stockton Centre up to the required standard, Ms Washington said: "The first step is understanding whether or not it's even an option."
The Department of Communities and Justice completed public consultation on the future of Tomaree Lodge in January and is assessing more than 500 survey responses and submissions.
The Stockton Centre is earmarked as a "town centre" with shops and houses in Port Stephens and Newcastle councils' joint Fern Bay North Stockton Strategy.
Ms Washington said deciding the future of both sites would be a "long path".
"It's going to take some time to ensure all the consultation is done that needs to be done to get the best outcome for both sites," she said.
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