Part of the NSW government's $6.6 billion housing investment, the transformation of Waterloo South in Sydney is set to build 3000 homes with more than half of those social and affordable premises.
The urban renewal continues a plan to build high-density, affordable housing around major transport hubs with a metro station opened in Waterloo in 2024.
The government wants to shift more residential development to suburbs close to the city centre, where infrastructure-related costs are lower because essential services are already in place.
Homes NSW said all Waterloo residents will have the right to return to the area once the project has been finished.
"Signing these contracts marks a historic moment for Waterloo and for social housing in Australia," Housing Minister Rose Jackson said.
"We are not just replacing old homes, we're creating a thriving, inclusive, and well-connected community that honours the rich history of the area."
The 3000-home boost is another small step from NSW towards hitting nationally agreed housing targets.
The state is committed to building 377,000 new homes by July 2029, but was on track to fall almost 74,000 short in Master Builders Australia data released in 2024.
Nationwide, new home building approvals fell by 0.3 per cent in February after an impressive 6.3 per cent jump in January.
Master Builders Australia chief economist Shane Garrett said higher-density home building approvals were doing the heavy lifting towards the nation's 1.2 million house target by 2029.
"Over the year to February, 177,400 new homes were approved, well below the 240,000 annual target," he said.
The Waterloo project features a two-hectare urban park, with 20 per cent of social homes and 15 per cent of affordable homes dedicated to Indigenous residents.
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