Although there had long been a hotel at Ōtira, the township expanded when the Ōtira railway tunnel was being built, from 1907 to 1923. Accommodation for construction workers made up most of the settlement: huts for the single men and bungalows for families. Although the population declined after the tunnel was opened, Ōtira remained a base for railway maintenance until 1999, when the remaining houses were sold.
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