Premier Chris Minns has also pledged to better consult residents who will be moved during the public housing overhaul, adding that increasing supply was key to fixing the state's accommodation crisis.
At least 50 per cent of roughly 3000 homes in the soon-to-be rebuilt Waterloo estate, in Sydney's inner south, will be social and affordable housing, up from 34 per cent under the previous government's plan.
Additionally, 15 per cent of the new social and affordable homes will be set aside for Indigenous people, who make up a large part of the local community.
Hundreds of tenants will be relocated starting from mid-2024 during the development, but they will have the right to return once the renewal is complete, the government says.
Mr Minns said one of the key answers to the state's housing crisis was building more homes and he rejected the idea all high-rise building needed to be "tall and crappy".
He said his vision for more housing included high-quality apartments and denser living like in New York, Paris and London.
"My argument is we can do that in Sydney and it's a far better way of growing the city than adding another street to the western fringe of Sydney every other week," Mr Minns told ABC Radio on Monday.
NSW is aiming to deliver 75,000 homes a year towards a recently agreed national target of 1.2 million dwellings over five years.
With the state currently producing fewer than 50,000 extra homes a year, Mr Minns said making up the shortfall would require major reforms.
"That means massively upscaling our construction sector, working on social housing in particular, utilising all available Crown and government lands and ensuring zonings are in place to provide opportunities for young people," he said.
Community activism group Action for Public Housing said the plan for Waterloo Estate was barely any improvement on the previous government's proposal.
Group member and Waterloo resident Karyn Brown said many people had worked for decades to make the estate a secure and welcoming place.
"Rather than breaking up the community and dispersing it amongst the assorted private landlords that community housing providers are, it should be retained as 100 per cent public housing, and the community supported to continue living here," she said.
Local MP Ron Hoenig said when he was elected 11 years ago many Waterloo public housing tenants were living in "terrible conditions".
"The renewal of Waterloo south estate will help ensure constituents have a far better quality of life than they could possibly have in the current state of the area," he said.
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