Each state will receive at least $50 million and the remaining money will be allocated on a per capita basis.
It can be used to build new public housing developments or upgrade existing properties that are currently uninhabitable.
Anthony Albanese announced the Social Housing Accelerator at the Victorian Labor conference on Saturday.
He did not specify exactly how many homes would be created, saying that would depend on how governments chose to spend the money.
"State and territory governments have agreed that it will be in perpetuity, so we're not going to have public housing built and then flogged off," Mr Albanese told reporters.
He said premiers and chief ministers had agreed to amend some planning laws, reform zoning and free up more land for new builds.
The move comes as the Greens continue to block laws in the Senate to enable the government's $10 billion Housing Australia Future Fund, calling for more ambitious spend and rent controls.
"Our government is not going to wait around while members of the Greens political party call for more housing in the media while opposing it in their electorates and voting against it in the parliament," Mr Albanese told the conference.
However, Greens leader Adam Bandt claimed the government had caved in to his party's demands on social housing and would negotiate over the entire $10 billion package in good faith.
The Property Council and Master Builders welcomed the $2 billion boost as a positive step towards addressing the housing affordability crisis.
Demand for social housing has increased almost three times as fast as the growth in population.
The Greens say a rent freeze is needed to tackle the rising cost of housing but state leaders have ruled out taking any action, arguing it would reduce the flow of supply and investment.
Instead they have committed to working with Mr Albanese on improving renters' rights, delivering on a 20,000-dwelling national housing accord, and progressing a new national housing and homelessness plan.
Rallying the Labor faithful, Mr Albanese described the federal Liberals - who also oppose the housing fund - as "basically a doomsday cult".
"For them, every day is the end of days. These are the people who said energy bill relief for families and businesses was 'Venezuelan communism'."
At the Liberal federal council meeting on Saturday, Opposition Leader Peter Dutton recommitted to allowing first home buyers to access their superannuation for a house deposit.
He hit out at the government's home buying scheme, claiming it would mean Australians had to rely on other taxpayers' money to purchase their home.
"Perversely, the government would then have equity in their home. That's not liberating, it's modern collectivism," he told the meeting.
"Australians should have a choice in using their super to buy a home and to get ahead in life."
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