The Auckland Council has agreed to set up a fund that offers cheaper loans to community housing providers to increase the supply of affordable housing.
It said it would underwrite loans to a maximum of $6 million over three years which would allow the community housing sector to raise $30 million.
Head of Community Housing Aotearoa Scott Figenshow said that extra money would come from socially responsible investors such as trusts and foundations at a slightly lower interest rate than other lending institutions.
"It's just one of the tools that's necessary to increase that supply of truly affordable housing in Auckland and this initiative will help to enable another 200 homes over the next three years."
Mr Figenshow said it would transform the city.
Auckland Deputy Mayor Penny Hulse said the programme was a way for community organisations to obtain cheaper finance to build houses.
"It means these organisations who have trouble raising capital will have easier access to capital and can borrow it at a cheaper rate."
Ms Hulse said it should reduce the cost of building a home by about $6000-$8000 per dwelling.
"Part of this is actually test driving a new way of doing funding, once we've ironed out all the wrinkles of how it works we're hoping that the philanthropic community of Auckland and New Zealand will find this a good way of investing and will grow the pot."
She said while the city was struggling for affordable housing 200 houses was better than nothing.
A new entity, independent of the council, would be set up to raise the capital, and to oversee the loans which would be given to community housing providers.