Neighbour is planning to build a new home, page-25

You would assume he has power and other services in his shed. Makes no sense other than he is looking at detached dual occupancy. That way he can rent out his shed house and still enjoy a buffer from his tenants.

Check out your local councils dual occupancy laws for your zoning. Long shot but if prohibited he would have to reinstate his shed back to non-residential. Also worth while seeing if he has a valid consent to be living in his shed. Plenty of ways to make it difficult if this is the path @gater you as a neighbour would like to pursue.