The public housing system has failed and many tenants should be fending for themselves, according to a NSW government blueprint that flags greater private involvement in the troubled sector.

A social housing discussion paper to be released on Tuesday by Community Services Minister Gabrielle Upton says despite more than half of tenants relying on the system for a decade or more, public housing need not be a "life-long destination".

Sell-off: Housing commission property at Millers Point. Credit:Lisa Maree Williams

However, the government has failed to detail exactly how it will close the gaping hole in the public housing budget, or how the proceeds of the controversial Millers Point public housing sell-off will be spent. It has also not provided any targets for curbing the public housing waiting list, which is expected to blow out to 86,000 by 2016, and will not release its final, overdue public housing policy until after the election next March.

The government is desperate to reduce demand on the flailing public housing system, which runs at a loss of about $300 million a year. It has been selling properties to try and balance the ledger – an approach described by the NSW Auditor General as "not financially sustainable".