Financial consultants warned the state government more than a decade ago that it would not share in the profits from the Kew Cottages redevelopment if it agreed to reduce the size of the $500 million-plus project, which it subsequently did.

The confidential advice, obtained by Fairfax Media, also indicates that the government was in private discussions about major changes to the Kew project, including the deletion of 159 apartments, even before the joint-venture contract was signed in October 2006.

The transformation of the long-time home for hundreds of Victorians with intellectual disabilities was supposed to be a bonanza for disability services across Victoria. Yet within weeks of signing the contract with Sydney billionaire developer Lang Walker in 2006, the government was warned it would not share in profits if it agreed to shrink the scale of project.

Confidential advice, by financial consultants PricewaterhouseCoopers, sheds some light on the poor return to taxpayers from what the Bracks government called a "flagship" housing project on the prime state-owned site in Melbourne's inner east.