people are always told 'you cant buy views' so providedyour land is zoned correctly for residential really i dont think your neighbour has much to stand on. i currently have a beautiful patc of remnant bushland in the distance accross the road and at the end of my street. i know though that one day the view will be gone as the land accross the road (between my place and the bush) is zoned for residential. if your neighbour did his research he too would have known that one day the land would be built on.
my advise is build a 2 storey place (if zoning permits) and place a nice airvent in the side that faces your neighbour or perhaps some matching window shutters to give your neighbour the privacy he wants!. ive pasted a link below of a nice vent feature you may wish to consider (copy and paste into internet explorer window!) http://www.zillow.com/blog/images/2007/ ... _house.jpg
Enjoy!