Housing Minister Phil Twyford has announced a "flagship" state housing development in Auckland.

Speaking on Tuesday, Mr Twyford said the redevelopment at 139 Greys Ave, Auckland Central will be targeted towards people with high needs.

He said the new development will help meet the growing demand for housing in Auckland's city centre, including an estimated 500 people currently sleeping rough, according to the Auckland City Mission.

"Supported living is an internationally proven way to house and support chronically homeless people, or those who have a range of complex needs," he says.

"Having a permanent home gives people the safe and stable environment they need to address factors which have led to their homelessness such as mental health issues and substance abuse."

There are currently 87 units on the site built more than 60 years ago. The current structure will be demolished and replaced with a "state of the art" 280-unit complex.