The Steelworks Hotel will undergo a complete makeover and be refurbished into new social and affordable homes, including 30 one-bedroom units.

Read more: Wollongong woman shows tough reality of living life on JobSeeker

Welfare agency Anglicare are behind the dramatic overhaul after buying the heritage-listed pub. It's part of their efforts to cater for the increasing number of people at risk of becoming homeless as they age.

Anglicare CEO Grant Millard said the development will provide older people at risk of homelessness with secure housing and tailored support.

"The project will conserve the historically significant building while providing new homes with quality communal areas that enhance opportunities for older residents to socialise," Mr Millard said.

Minister for Families, Communities and Disability Services Alister Henskens said the revamp was one of two projects in the Illawarra funded through the latest round of the NSW Government's Community Housing Innovation Fund (CHIF).

Read more: Wollongong suburb's median property price hits $1 million

The second project is a 30-unit development close to Wollongong CBD driven by the Housing Trust, and also received a boost of $5 million.

"We are joining forces with Anglicare and Housing Trust to deliver dozens of new affordable rental homes in the Illawarra, providing safe and stable accommodation for those who need it most," Mr Henskens said.

"This program is unlocking exciting and innovative development opportunities by partnering with community housing providers, and these projects will add to the strong pipeline of social and affordable housing being delivered across the region."

Housing Trust CEO Michele Adair said the development will also use part of the $4.3 million Housing Trust received in Federal funding distributed through Wollongong City Council's affordable housing program for older single women and women with children.

"This is an investment in our local heroes," Ms Adair said.

"The frontline workers who we've all relied upon during the pandemic need affordable rents in secure, quality housing close to where they work. The project will also create local jobs during construction delivering a boost to the local economy."

The Illawarra Mercury newsroom is funded by our readers. You can subscribe to support our journalism here.