The townhouses, a mix of one and two bedroom units, will be built on a single empty block in residential-zoned Maestro Crescent, bought by Centacare.

There will also be another 11 homes built in Delacombe, with plans for 18 in Canadian in partnership with Community Housing (Vic) and 14 in partnership with Haven, Home, Safe; and 12 homes in Mount Pleasant.

READ MORE: This shire wants 113 new social houses. It only has eight

These homes will join previously-announced projects in Redan, for people requiring mental health support, and a partnership with Aboriginal Housing Victoria in Brown Hill.

The funding is from the state government's massive Big Housing Build fund, with $20 million allocated to Ballarat.

The new social housing - separate to public housing, which is built and provided by the state government - will not involve demolishing existing properties and building new ones.

READ MORE: Review of potential social housing sites underway in Ballarat

Wendouree MP Juliana Addison said rent would be tied to the resident's income, to avoid housing stress, and would be about 25 per cent less than the market rate.

"We're not setting people up to fail," she said.

"This is very long-term housing for people, people move here and it becomes their life, it becomes their neighbourhood, it's not just in and out, it's a chance to build a life in this beautiful setting, it's going to be transformative."

Centacare Housing Services chair Neil Jens said he expected work to begin by the end of the year.

"There are a lot of people who don't have accommodation today, and we're taking the most difficult cases," he said.

"I happen to know personally, I've been involved in real estate for a long time - if you happen to fall out with the real estate community, as in you can't get a good referral, you just can't get a good house, in Ballarat today you just can't get a good house - you'll end up sleeping on someone's couch or taking up some accommodation in a boarding house in a room somewhere if you can afford it.

"This initiative from the state government is going to go a long way towards solving and taking the worst, most difficult cases that people are experiencing so much hardship, this will go a long way towards taking them off the list and putting them into a really comfortable house."

Centacare Housing's chief executive Ross Wheatland said demand was increasing.

"Particularly in the rental market, which has a low percentage of availability - what that does is push up prices, and what that in turn does is then have a flow-on effect for people who are unable to afford rental accommodation," he said.

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"In terms of the wait period, we would have people that are on the housing register in Victoria that may have been on the register for multiple years, and depending on circumstances they may never get to the top because of priority status.

"We might see people waiting for a significant number of years who will still struggle to get into the housing market, in commercial or social housing."

Mr Jens added there will be other supports through Centacare for residents.

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"We don't just put them in a house, we're actually working with them on a whole range of services to get them back actively into the community, with work and a house, to get them back on their feet," he said.

"To me, the greatest success we ever have is having someone who's in an absolutely shocking position, can't get a house, and one day we see them going off the list because they got a house in the private market."

The state government is currently investigating a separate project under the same fund for housing in Delacombe near Leawarra Crescent, with community consultation closing earlier this month and a final masterplan expected by the end of the year.

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