"Jeez, Stockton has so much potential," says one person, turning sausages on the barbecue.

"Yeah," says another, watching progress with the snags. "All that beach. Water on both sides."

"Newcastle really should do something with it," says the first. "It could be like the Gold Coast - or better."

"But it's so isolated: that long drive over Stockton Bridge and along Kooragang."

"Right. Stockton's not going anywhere without a new bridge over the harbour, or a tunnel."

"Well, that'll never happen. It's a pipe dream."

So they sip their beers and change the subject.

Actually, it can happen. We can plan to turn Stockton into the most spectacular locality in Greater Newcastle. There is a way to eventually provide a harbour tunnel to the isolated suburb, integrating it with the rest of the city and unlocking its potential.

A valuable new arterial road should also accompany the tunnel. Benefits would include a much shorter connection between our densest suburbs and Port Stephens.

Assuming a cross-harbour connection can be supplied, the shape of future Stockton is easy to imagine. It's most prominent feature would be a spine of residential skyscrapers down the middle of the peninsula, mostly along Douglas Street. Flats on one side of the towers would have views of the ocean; those on the other side would look out on the harbour.

Heights of buildings would step down toward shore, and we can imagine a lively strip of restaurants and bars next to the beach. We would avoid the Gold Coast mistake of permitting tall buildings right next to the water.

The population would probably be at least 30,000, up from about 4000 now, even without extending the high-rise zone to the sites of Fort Wallace and the former Stockton Centre (both of which are already marked for redevelopment). So that would be at least 26,000 people who would not add to suburban sprawl up the valley.

Because Stockton is compact and flat, the main means of local travel would be walking. That would often include a short walk to the beach.

Before all this happens, Stockton needs to remain a bungalow suburb. As pointed out in earlier Hunter Essays, zoning must prevent the construction of modest strata-titled buildings that later developers would have difficulty buying and replacing with full-size towers.

As with the Back Row in the city centre and the Mitchell-Patrick line in Merewether, both proposed in earlier articles, I think the minimum height for the Douglas Street line in Stockton should be 60 floors. These sites should not be wasted.

Because the land could probably accommodate at least eight times as many people as it does now, its value would skyrocket.

And that's how we would pay for our tunnel.

The concept is value capture. When a government provides costly infrastructure that improves land values, it can use one of several methods to make land owners hand over some of their unearned gains. For example, it can impose a charge on redevelopment.

The idea is simpler in theory than it is in practice, but it does work in other countries, and NSW has already taken early steps along this path.

The nine-kilometre NorthConnex tunnel in Sydney cost $3 billion, so a Newcastle Harbour Tunnel, about 1.5 kilometres long, should not cost more than $1 billion.

Since the total area of building lots at Stockton is 1 million square metres, recovering $1000 per square metre would pay for a $1 billion tunnel. Land at Stockton must already be worth about $1000 per square metre, and massive construction on the sites would cause it to multiply - so the state could indeed collect the tunnel cost from developers.

Tolls could contribute, too.

The state would have to build the tunnel somewhat speculatively, in expectation of recovering the funds; it would regard this as a major urban renewal project.

The work would go ahead when the market for building residential skyscrapers at Stockton was ripe, probably in the second half of the century. In my view, very high construction in the city centre and Merewether should come first.

To prepare for Stockton's extreme makeover, we need to plan the tunnel now and reserve land for its approaches, including sufficient lengths for diving under harbour, which has a channel 15 metres deep.

To provide good connections to other roads, the tunnel's city end must be at Carrington. Two streets there are suitable for feeding it: Cowper and Elizabeth.

Using Cowper Street would provide a shorter and more southerly route with quicker travelling times to and from the more intensely developed areas of Greater Newcastle. But traffic pouring along Cowper Street would ruin Carrington and mostly run through the CBD to get to such places as Lambton, Kotara and Charlestown.

Elizabeth Street, on the other hand, could distribute most of the traffic via Industrial Drive to a new arterial road on the alignment of the old Waratah Coal Company's rail line to Port Waratah.

The northeastern half of the alignment is the current, active Port Waratah railway, which will be needed indefinitely to serve harbour-side activities, including whatever appears on disused Mayfield industrial land. But the corridor's width is greater than 40 metres, more than enough for four tracks and four road lanes.

The road would distribute traffic from Port Stephens, Stockton and the harbour employment zone to Mayfield, Waratah, Hamilton North and, most importantly, the big arterial roads around McDonald Jones Stadium.

How surprising it is to find a route for such a valuable inner-city bypass running through thickly populated suburbs that are more than a century old. Moreover, a road on this route would cause very little disruption: its noise would be reduced by the cutting at Tighes Hill, it couldn't do much damage to the amenity of houses that already suffer from coal trains, and would pass only about 30 that don't.

The biggest drawback is that it would somewhat divide Georgetown from Hamilton North. Putting the road in another cutting there would help.

The state government must promptly draw up plans for this extraordinarily useful thoroughfare, including an interchange at Turton Road.

Densely populated future Stockton could also justify a tram line that would eventually extend at least to Williamtown and maybe to the southern shores of Port Stephens. The vehicles could be tram-trains, which would run fast where their corridors were separated from people.

The tram line, too, would need to go under the harbour. One option, maybe the cheapest, would be to incorporate it in the road tunnel. But ideally the tram tunnel would run between the southern end of Douglas Street and Foreshore Park west of Queens Wharf.

Either option would provide a far better line for an airport service than one proposed by Newcastle City Council, which would first head upriver beyond Sandgate. But justifying a tram tunnel may not be easy, especially if an excellent road tunnel had already been built.

Finally, let's talk about the elephant in Stockton's room: rising sea levels.

Perhaps surprisingly, recent modelling published in the Newcastle Herald showed just a little of the peninsula inundated 80 years from now. But maybe we should guard against greater losses.

In fact, that would not be hard. A suburb that is almost completely rebuilt could have its new ground floors one to two metres above the current road level, which itself could eventually be raised if necessary.