About €1.3 billion will be made available each year for the construction of 5,000 apartments, of which a third will come from the European Investment Bank (EIB).
The new apartments are planned for urban centres such as Vienna, Graz and Linz - where demand for affordable housing is high. The population of Vienna is predicted to grow by 10 percent in the next ten years.
The project aims to provide homes for about 68,000 people in total and will bring a boost to the domestic economy of 0.4 percent GDP growth and contribute to a reduction in public debt of 1.5 percent.
Additionally it is expected to create 30,000 jobs - of which between 15,000 and 20,000 will be permanent.
Josef Muchitsch from the Wood Construction Union said the "innovative" project came about because Austria doesn’t have enough affordable housing and needs to create new employment opportunities.
It will use available capital at historically low interest rates, he said.
Muchitsch said he assumes the government will now review the model for the project, with Minister for Social Affairs Rudolf Hundstorfer having already announced his support, given that the project would not put pressure on the national budget.
He added that it was a “Christmas gift that the government just needed to unwrap”.