In a first of its type in this country, a cheaper housing option is to be available for the capital's most vulnerable residents.
Under the terms of the agreement, the Wellington City Council will hand responsibility for up to 20 of its tenancies to the Salvation Army, and the tenants will pay lower rent.
It is the first time the government's income related rent subsidy will be offered through council housing.
Under the terms of the partnership, people on the Ministry of Social Development's (MSD's) social housing register will be housed in council units, which have income-pegged rents.
That will make a big difference to the rent people pay, because while council rent is 70 percent of market rates, the government subsidy is based on 25 percent of income.
The manager of the Salvation Army's social housing unit, Greg Coyle, said the new agreement allowed them to provide housing for those on very low incomes.
"The costs of housing go from 70 percent of market [rent], down to 25 percent of their income. That gives those people the opportunity to progress their lives a lot more ... the biggest cost to them is rent and some of them find that that cost is unaffordable," he said.
Dr Coyle said the biggest demand was from older, single people, many who have fallen out with their families, struggled with addiction or have been released from prison.
Not only would they receive a roof over their head and lower rent, but also wraparound services to help get them back on their feet.
"We took a chap to an income-related rent property recently. He'd been at the night shelter a lot of time in the last few months. We put him straight into a one-bedroom flat and he was absolutely delighted and his rent was about $55-60 a week from his benefit and he was right near the Salvation Army services.
"He just said, 'wow I can't believe that this is a place that I could live in'."
The council's deputy mayor, Paul Eagle, said only new tenants would be able to apply, but many of those who were eligible for council housing also meet the criteria for the income-related rents.
The pilot is starting small, with just two homes based in Newtown so far, with the option of taking up to 20 houses, about 1 percent of the council's 2200 units.
Representatives from the council and the Salvation Army signed the first two leases at the council offices this afternoon.