Three levels of government are pitching in to fund the construction of 74 apartments in a partnership with affordable housing provider City West Housing.
The $66 million Boronia Apartments development at Waterloo, in inner Sydney, is planned to provide affordable housing close to the city centre for people with very low to moderate incomes.
Rents are to be capped at 30 per cent of household income - the threshold at which people are defined as being under housing stress.
The building is near the site of an ongoing "renewal project" planned to deliver 3000 homes, more than half of which would be social and affordable housing.
It will involve demolishing existing public housing, which has been in the Waterloo area for decades, prompting some community opposition.
The renewal project will take decades and will be completed in stages.
The relocation of some public housing tenants has begun, with a six-month notice period and support from Homes NSW.
Meanwhile, a federal minister has batted aside warnings an ambitious national housing target will not be met, saying strategies to fulfil it will be discussed at an upcoming economic reform summit.
Federal and state governments have committed to building 1.2 million homes by 2029 - about 240,000 homes each year - but in the 12 months to June 2024, just 176,000 homes were built.
Reaching the target will require all levels of government to work together, alongside the private sector and investors, Housing Minister Clare O'Neil said.
"What we are trying to do is use this 1.2 million (target) to galvanise change to housing in our country," she told ABC Radio National on Friday.
"It's bold, it's ambitious, but I can tell you that that's exactly what's needed.
"Do we have more work to do? Absolutely, our housing crisis has been cooking for 40 years because it is a very hard problem to solve."
Data released by property research firm Cotality this week showed housing approvals could increase in the coming months due to rezoning reforms and incentives for new builds coinciding with falling interest rates.
But rather than fix the shortage of homes, it could cause a problem for the construction industry by adding new projects to an already long list.
The analysis found delivery to be the problem, not approvals, with 219,000 homes under construction and completion times ballooning.
Ms O'Neil agreed construction was a big part of the housing problem as it was "too hard to build a house in Australia".
"(With) red tape and regulation, you would not believe what builders have to confront before they've even laid a brick in this country, and that's holding us back," she said.
