The NSW government will donate about one hectare of prime land in the heart of Sydney to developers to create affordable build-to-rent housing, in an Australian first.

Minister for Family and Community Services and Social Housing Pru Goward announced the site on Elizabeth Street opposite Redfern Park will be given away to investors under a 40-year lease, with the site exempt from land tax.

Minister Goward said the build-to-rent model allows the government to retain valuable state-owned land while investors, in partnership with community housing providers fund, build and manage the site under a long-term lease.

“Under this innovative approach, we are able to provide government-owned land to investors under a 40-year lease and at the end of the term, the asset is retained by the government.”

The build-to-rent model sees developers team up with governments and investors to build housing with the purpose of renting out properties at an affordable price.

It’s expected 400 to 500 dwellings will be built with 70 per cent of dwellings earmarked for renters at market prices and 30 per cent will be social and affordable housing.

The model allows the developer to recoup the building costs and turn a profit through the privately rented properties, with the balance rented to low-income tenants.

It will be part of the Communities Plus program which aims to increase social and affordable housing in NSW.

CEO of NSW Federation of Housing Associations Wendy Hayhurst welcomed the announcement, saying it was a positive step forward in addressing unaffordable costs housing and increasing supply.

“The location is perfect … it’s very close to transport and it’s walkable into the CBD. It’s a great place for young people to be and it’s also good if you’re on a lower income because there’s plenty of jobs around here,” Ms Hayhurst said.

She said the program would provide an example to future investors and developers that there is appetite to replicate this mixed model elsewhere.

“It’s a proof of concept obviously but if you’re going to attract institutional investors you have to convince them it works. The economics of this one will make it relatively easy to finance.

“It encourages them [developers] to dip their toes in the water … by providing that concessional land to attract institutional investment,” Ms Hayhurst said.

“Land is a huge part of the development cost. If you give the land then the development would stack up,” she said.

Executive Director of Property Council NSW Jane Fitzgerald said the government has put its money where its mouth is.

“They’re not only giving the land but also giving a full land tax exemption for the project which should really make a difference for making the financials stack up,” Ms Fitzgerald said.

“It’s adding an extra string to the bow of the very excellent Communities Plus program and it’s a massive step forward in delivering build-to-rent to Sydney,” she said.

The Land and Housing Corporation will open expressions of interest in coming months and hopes to attracts developers, investors and super funds to get the project off the ground.