The one and two-bedroom homes will be built in three suburbs – Bellambi, Corrimal and Unanderra – and are expected to be completed late this year or early in 2017.

The building program will benefit some of the almost 3700 applicants who currently find themselves on the waiting list for social housing in the Illawarra and Shoalhaven.

Department of Family and Community Services Illawarra Shoalhaven district director Gary Groves said demand for the housing was “evenly spread” across the Illawarra.

Mr Groves said people on the general and priority waiting lists would be used to fill the new properties.

“The waiting time for households in the Illawarra-Shoalhaven varies by bedroom type, however is generally between five and 10 years,” he said. 

Parliamentary secretary for the Illawarra Gareth Ward said the new homes would help “provide stable housing for those in need”.

The sale of heritage properties at Millers Point has already seen 18 new units constructed at Mount Warrigal and Warilla.

“To date, 47 government-owned properties in Millers Point have been sold, raising almost $116 million, with each sale in Millers Point creating up to five new homes,” Mr Ward said.

The announcement comes as the Baird government embarks on a 10-year reform of the social housing sector. 

Minister for social housing Brad Hazzard announced a large scale building program, dubbed Future Directions in NSW Social Housing, at the weekend. The reform includes a new partnership between the private and non-government sectors to deliver more homes.

Old public housing estates would be redeveloped into mixed communities, putting “thousands of people in social housing on a better path”, Mr Hazzard said. 

“Children in social housing should not see disadvantage as their only future,” he said.

The Future Directions program is in addition to the Social and Affordable Housing Fund, which will deliver 3000 new social and affordable dwellings across NSW.

The Baird government's "bonanza" public housing plan has been welcomed by the not-for-profit sector as an end to decades of policy paralysis.

Social Housing Minister Brad Hazzard announced on Sunday a plan to raze ageing, dysfunctional estates and sell them to developers, as long as they build a mix of private and public homes on the sites.

"Today's policy unleashes the potential in public housing for a building bonanza, $22 billion worth of building and about 23,000 new social and affordable houses," Mr Hazzard said. This comprises 17,000 replacement dwellings and 6000 extra ones within 10 years. 

But Labor has warned the biggest beneficiaries of the scheme are likely to be developers and investors, rather than tenants in precarious housing situations. 

The not-for-profit community housing sector, which will take control of 35 per cent of social housing within 10 years, said the government had provided a framework to tackle an ongoing crisis in availability. 

"The government's own figures show 150,000 families on low to moderate incomes are in housing stress, so fresh approaches are really needed," the NSW Federation of Housing Associations chief executive Wendy Hayhurst said. 

Andrea Galloway, chief executive of Evolve, a major community housing provider in New South Wales, said she was "overjoyed" that policy in the sector was at last "going in the right direction" after being moribund for the last four years.

"There are a lot of innovative ways to deliver this, and the government has to let both the private sector and the not-for-profit community housing sector come up with ideas to put this into practice" Ms Galloway said.

However, she said major questions around who would hold the title to housing and land in the proposed new mixed developments had yet to be answered.

Mission Australia chief executive Catherine Yeomans also congratulated the government for including the private sector in its plans. 

But the charity was disappointed the government would not change zoning laws to require public or affordable housing within all new major residential developments.

The government said it would "ensure large redevelopments aim for a 70:30 ratio of private to social housing". It also promised a 60 per cent increase to the number of people on subsidised rent. 

The Opposition attacked the scheme for what it claimed was an over-reliance on rental subsidies, saying it would push residents out into a volatile and expensive private rental market. 

"I think it's going to create an endless cycle of poverty" shadow social housing minister Tania Mihailuk​ said. 

"The winners out of this are investors and developers. There is a lot of money to be made."

The government was unable to say how much the redevelopments would cost or how much revenue land sales would bring in. "Through leveraging the land values the redevelopments will be done at minimal cost to taxpayers," a spokeswoman for the minister said.

Properties will be sold off to developers through tenders over the next six years while the community sector will run its housing on long-term leases. 

Redevelopments of the Waterloo estate in Sydney's inner-west and the Ivanhoe estate at Macquarie Park have already been announced. 

The Departments of Industry and the Department of Families and Community Services may also look for Crown land on which to build other developments. 

The government has scheduled a briefing meeting for investors and community sector providers on Wednesday. 

- Patrick Begley, Deborah Snow