Presbyterian Support Otago chief executive Jo Rowe said unaffordable rents and lack of appropriate options led to people living in cars or on the street.
Competition for rental properties was intense and an increasing number of people needing help from the agency raised concerns about what she called insecure accommodation, or living arrangements that were difficult to afford, inadequate, unsuitable or a temporary solution.
Dunedin Night Shelter Trust chairwoman Clare Curran said many people were living in unsuitable situations they could not afford.
"I fully support any proposal to develop affordable social housing, to take the pressure off the housing market," Ms Curran said.
A development by Kainga Ora, if it proceeded, could make a significant difference, she said.
The Dunedin City Council confirmed this week an agreement had been signed with Kainga Ora for the government agency to explore the potential for housing at 658 Princes St.
The site is used as a bus depot and, if the property is found to be suitable for housing, the city council would need to sell it to the Crown.
Council property services group manager David Bainbridge-Zafar said a lease with Go Bus expired in March 2017, a periodic tenancy had been in place since and the council had been working with the bus company since 2018 to help it find a new site.
Kainga Ora South Island deputy chief executive Paul Commons said the proposed development could provide a boost to housing in Dunedin at a central site.
The agency was investigating the suitability of the property and Mr Commons said he could not provide details about what might be planned.
"Due diligence work includes looking at the environmental and geotechnical features of the site, as well as the suitability of existing infrastructure to support housing."
The city council is itself set to increase its community housing portfolio, for which there has been a growing waiting list.
Housing supply is also expected to be influenced by proposed changes to the city council’s district plan.
Some rules would be relaxed, allowing more intensification of housing in parts of the city.
Salvation Army Dunedin community ministries manager David McKenzie said he was encouraged by efforts to provide more community or social housing.
"Absolutely, there is a need," Mr McKenzie said. "The more we can get, the better."
Transitional housing provided through the Ministry of Social Development helped ease the pressure, Mr McKenzie said.
South Dunedin Community Network chairwoman Eleanor Doig said more community housing was desperately needed.
In South Dunedin, about half of the suburb’s properties were rented.
A lot of housing stock was as old as the early days of European settlement, she said.
Damp, unhealthy conditions led to other problems, such as a greater chance of people becoming sick.
"That needs to be improved."
Ms Curran said single men were sometimes overlooked for support.
She had heard yesterday of a man in a boarding house paying $220 a week for a room that had no bed.
Such situations were unsustainable for people on very low incomes, she said.
