VICTORIA — A derelict heritage building located in Vancouver's drug-infested Downtown Eastside was billed Wednesday as the shabby neighbourhood's ticket to prosperity.

B.C. Premier Gordon Campbell said the provincial government has agreed to sell the vacant Woodward's building to the city of Vancouver for $5.5 million. Vancouver Mayor Larry Campbell said the Woodward's deal is a major step toward cleaning up the city's skid row. It could soon be the site of commercial and retail businesses and social housing.

Premier Campbell, a former Vancouver mayor, said the government has tried to sell the property but realized it was best to turn that job over to the city.

"The options for redevelopment are both complicated and difficult to deal with," he said. "The best body to decide on the future of the Woodward's site is the city of Vancouver."

Mayor Campbell said development of the former Woodward's department store is seen as a key to revitalizing Vancouver's troubled Downtown Eastside.

"The problems of the Downtown Eastside are not just Vancouver's problems, they are British Columbia's problems," he said.

"We can find poverty and addiction in almost every community in this province, but the worst poverty and the most destructive cycles of addiction and misery are concentrated in our city's Downtown Eastside."

Campbell, a left-leaning mayor whose former life as a coroner and RCMP officer led to the hit television program Da Vinci's Inquest, said he was elected last November to tackle the city's poverty and drug problems.

"The Woodward's site is another key to our city's future," he said.

"It can be an anchor to our community in the best sense of the word. Or it can remain what it has been, an anchor that is dragging down entire blocks of the downtown core."

The memorandum of understanding includes provincial funding for 100 units of non-market housing in the Woodward's building for people at risk of homelessness, low incomes and disabilities.

The 1903 heritage building became a symbol of homelessness and affordable housing after the Woodward's chain went bankrupt in 1993.

Social housing activists campaigned to have the entire store converted to more than 400 units of affordable housing.

Last fall, the building became a battleground for Vancouver's homeless and anti-poverty activists.

About 200 protesters surrounded the 55,740-square-metre building and formed a squatter's camp that included tents, mattresses and a volunteer kitchen.

The Woodward's Squat, as it became known, did not break up until mid-December when Vancouver's newly elected left-wing council moved 53 permanent protesters to an eastside hotel about three blocks from the building.

Disputes with squatters and affordable housing protesters have become issues in other Canadian cities.

Police in Toronto evicted about 125 people last fall who had been camping at a contaminated lake-front lot that became known as Tent City.

Protesters called on all levels of government to provide affordable housing in a rally in front of the Tent City following the mass eviction.

"There is no doubt that without a national housing program, there will be more tent cities," said organizer Beric German of the Toronto Disaster Relief Committee.

Vancouver's Woodward's building sat empty for several years before it was bought by private developer Kassem Aghtai. The former New Democratic Party government spent months negotiating a deal with him that would have seen some social housing incorporated into the rebuilt store.

The deal collapsed when Aghtai backed out and then sold the property.

The NDP bought the building for $22 million about one month before the May 2001 provincial election with the intention of converting it to social housing.

After the new Liberal government inherited Woodward's, it tried to sell it, but was unable to find a developer willing to buy it for the price the province was asking.

It was estimated it will cost $60 million to $100 million to redevelop the heritage-designated building.

George Abbott, community, aboriginal and women's services minister, earlier refused to say if the Woodward's negotiations were linked to Vancouver's 2010 Winter Olympics bid.

Mayor Campbell said Woodward's is an important factor in the city's preparations for the Olympics.