"MSD has identified a distinct group of people that face a range of complex issues that are a barrier to finding and keeping a home of their own, such as mental health and addictions, criminal history, or family violence," she said.
"We need to stabilise their situations ... For many vulnerable whanau and individuals one-on-one support from an experienced, caring person is the best way to ensure they get the help they need."
The Government is also spending $6.6 million over two years to expand its Sustaining Tenancies programme from a trial.
The scheme, run through community groups, gives practical budget advice, property maintenance and mental health support to people in state housing, in three cities - Auckland, Wellington and Christchurch - and helps about 550 people a year.
Faafoi said the new money would mean the programme could expand into five new regions - including Northland, Rotorua, Napier Hamilton, Hastings and Lower Hutt - and into the private housing market, assisting about 1550 once it had been rolled out from November.
Downtown Community Ministry in central Wellington is one of the organisations that's been part of the scheme – helping about 50 people a year. Its director, Stephanie McIntyre, described the announcement as "music to the ears of community groups".
"We can support people who sometimes have lengthy backgrounds of homelessness and are holding on by their fingernails to their flat – this makes the difference to enable them to not only sustain their flat, but thrive in their life," she said.
McIntyre gave an example a man who had been homeless for 12 years before the programme got running.
"He's now had three years of stable tenancy. He's a man who is very mentally unwell. He's had 120 admissions to the mental health ward … This is enabling us to get the kind of engagement, traction, to see him through those phases and sustain his housings. And there's many more examples we could give you."
She said studies in New Zealand had shown it cost the Government $65,000 for someone to stay homeless, but the programme would for $5000 to $10,000 help someone keep their home.
McIntyre said there was also an awareness that many vulnerable people were having a negative impact on commercial guests at the motels and backpackers where they were being placed. The funding would help address the issue, McIntyre said.
"It's not working well, that whole strategy to use that as an emergency system without good support."
The money for the new announcement has out of a contingency fund set aside in the May Budget for tackling homelessness and comes on top of $197 million put towards boosting a nationwide scheme aimed at getting people into housing.
About 806 homes had been filled by that programme by June.
A University of Otago study in 2017 estimated there were 41,000 people across New Zealand who were homeless, including those sleeping in garages or emergency shelter.
Welfare payments for emergency housing across New Zealand skyrocketed almost 200 per cent in 2018.
In the first three months of this year, the Government paid out $23 million for emergency motel accommodation and more than 12,000 people were on a waiting list for state housing in August.
The Opposition has blamed growing demand for emergency housing grants on an increasing cost of living, but Sepuloni has attributed the situation to the housing crisis.
