Social Housing Minister Amy Adams told Hawke's Bay Today this would help "chronically homeless people" in Napier off the streets, to get their lives back on track.
"We don't want to see anyone living on the street or in shelters. The drivers behind homelessness are complex and difficult, such as mental health issues, alcoholism or family violence, and there isn't a quick fix," she said.
"We need to combat homelessness at its core, by addressing the causes behind it.
"This new support will help chronically homeless people in Napier, and will help facilitate access to much-needed addiction and mental health support services. The supported-living component is a new initiative and provides the next step to meeting the needs of homeless people."
Yesterday Whatever It Takes community support team leader Whiu Carroll said the funding would "help immensely", as providing people in need with housing was the first step in ensuring they could become independent, and recover from whatever issues they faced.
"We're trying to help them get settled and feel like the home is theirs, so we can start dealing with the other issues," he said.
"[The funding] can only be positive, but it is complex to understand ... it's not just addiction and mental health, it's everything."
Previously the agency has said resourcing and funding were an issue in the way of it providing the best services possible. When asked if this would help the agency bridge this gap, Mr Carroll said, "It's the start."
"It's going to take a long time, it's a long process for these guys, it takes time to make changes."
The funding was also applauded by Napier Mayor Bill Dalton, whose council has faced scrutiny about the city's homeless population.
While he thought the funding was timely, he said "anything the Government can do to help the homeless, and unfortunate in our society has got to be good news".
"It's appalling to think that in a relatively wealthy country like New Zealand, there are people who don't have a home to go to at night."
Yesterday National's candidate for Napier, David Elliot, said talking with people from across the community had shown this was a "major issue" for the city.
"It is fantastic that Napier is getting the solutions and funding it needs with this brand new initiative."
Napier MP Stuart Nash agreed that this announcement was a step in the right direction.
Mr Nash said he had immense respect for the Trust and anything that helped them and the standard of living in Napier was good news.
"They are the best organisation to implement this so I am very supportive."
WIT is a registered community housing provider, and provides 12 social houses in Napier.
Mr Carroll said he did not want to disclose the location of the homes, as it was important for those living in them to feel safe and undisturbed.
Other initiatives have recently been taken to address growing concern about the issue - such as a new central business district security programme involving foot patrols, and Police support, which the council expected to be rolled out in the next fortnight.