The Government will borrow $5 billion in the next four to five years to build 8000 state and transitional houses in partnership with housing providers.
A $56 million fund will also allow low-income families in 9000 more homes to have their houses insulated and heated.
It comes as the state housing waiting list is at a record high of about 15,000, almost three times as much as it was when the Government came to power in 2017.
The 8000 new homes will be split between 6000 state houses and 2000 transitional homes.
A Government spokesperson said construction had not started on any of the 8000 homes, meaning they would all be additional to the overall housing stock.
They will also be on top of the 6400 public houses in the four years to 2022 that the Government announced in 2018, and the 1000 transitional homes announced in February as part of the Government's plan to house the homeless.
Along with the expected borrowing, Budget 2020 includes $570 million in new funding for the build programme.
About 70 per cent of the homes to be built will be done by the Ministry of Housing and Urban Development, while 30 per cent will be built by housing providers - but they will be paid for and owned by the Government.
This is different to the previous National-led Government's scheme, which partnered with housing providers to add to the state housing stock, but providers that built state homes then owned them and rented them out.
Housing Minister Megan Woods said the announcement sent a strong signal to the construction sector so it could secure investment, retain staff and employ those who would benefit from a new Budget 2020 package to make specific trades training free for two years.
She said an extra $100 million would cover 1650 extra places under the income-related rent subsidy for people who had been housed ahead of schedule over the past two and a half years.
She also announced $56 million to boost the Government's insulation and heating programme, estimated to make 9000 more homes warmer.
The proportion of costs of an insulation and/or heating retrofit that the Government will pay for will be boosted for low-income households - from 67 per cent to 90 per cent.
The Warmer Kiwi Homes programme is part of Labour's confidence and supply agreement with the Green Party. So far the programme has provided more than 20,000 insulation and heating retrofits since it began in July 2018.
Woods added that more than 90 per cent of the insulation products installed through the programme are made in New Zealand.