Tauranga is ranked among the most expensive housing in the world when measured against income.
"This papakāinga will provide further opportunities for whānau to re-connect with their whenua but more importantly to live in a kaupapa Māori community," Mahuta said.
The development was expected to be completed in June 2020 and would provide added support to two local marae; ngā pae tapu o Hairini and Maungatapu Marae.
"A strong and thriving cultural identity is essential to sustainable social and economic development within whānau and communities.
"Not only does it reconnect Māori with their ancestral whenua but provides a strong sense of ownership and self-determination," Mahuta said.