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At a recent public meeting on the island, Habitat for Humanity Invercargill was appointed to lead the construction operations and general manager Paul Searancke was appointed project manager.
Habitat will also manage the tenants later.
For several years, islanders have been investigating building six to 10 units in Oban, Halfmoon Bay, providing an option for elderly residents wanting to downsize but stay on the island.
In 2014, Venture Southland approved $15,000 for an independent investigation into the feasibility of the project.
Bruce Ford, who has been driving the plans, said he was delighted with Habitat’s support.
"It’s the very thing we wanted to happen."
The next step was to form a trust to raise the capital to build the units.
He estimated the cost would be at least $1 million.
However, Mr Ford said it was "still early days" for the project and construction was not guaranteed yet.
"There is still a lot of spadework to do. We have to do the financials ... and go cap in hand to funders."
Mr Searancke said Habitat had been in Invercargill for more than 20 years and in that time had built 17 houses.
In other parts of the country, it also managed community houses complexes.
Because Habitat was a charity, it was offering assistance to Stewart Island locals for "cost plus a little bit", he said.
Mr Searancke said Habitat’s contacts and experience would enable it to get the best price possible for materials for the Stewart Island units.
As a charitable organisation, it could also attract subsidies to make up any shortfall for pensioners who could not afford to pay full market rents for their units.