Up to 100 house blocks, including social and affordable housing, are to be released in North Forbes.
Upper House MP Sam Farraway was in Forbes on Friday to announce, with Mayor Phyllis Miller, the release of Crown Land for housing development.
About 10.28 hectares of Crown Land off Farnell Street and Watson Close is to become about three blocks of homes - single dwellings and duplexes.
"We could see up to 100 lots made available on partly Crown land for not only new housing development and subdivision but also opportunities to integrate social and affordable housing," Mr Farraway said.
"This is a game-changer. This is not going to be the silver bullet that fixes every housing challenge we have in the bush but this is the start."
Mayor Phyllis Miller said additional housing was crucial for Forbes' projected growth and particularly in light of the horrendous floods of 2022.
Forbes Shire Council is already developing Goldridge Estate, and is now working closely with Crown Lands, Land and Housing Corporation and Peak Hill Aboriginal land Council on this project.
"We will have social housing, affordable housing, and we'll also have some housing that will attract our older people. So it's really exciting," she said.
Mayor Miller said 368 houses were severely damaged in the flood, and the lack of available rental properties in Forbes means people are living in caravans or sheds.
"They're going to be another 12 months before they get in their houses," she said.
"It's terrible at the moment. We're trying to get pods to some of these families ... but we won't need that next time. We will have enough housing, we'll have investors come in, they will build houses here for the rental market, it's going to be absolutely fantastic."
Minister for Lands and Water Kevin Anderson said the Forbes announcement was part of a three-year Crown Lands program designed to activate underutilised government land for housing projects in regional areas facing housing stress.
"The repurposing of this government land will help members of the community get an affordable roof over their head," Mr Anderson said.
"The land is already zoned for residential use and will be subdivided by (Land and Housing Corporation) to provide new blocks that can deliver a mix of single dwellings and duplexes within a diverse new community."
NSW Aboriginal Land Council Chairman Danny Chapman said NSWALC will work with the NSW Government, Peak Hill Local Aboriginal Land Council and other stakeholders to ensure positive outcomes for Aboriginal people in the area.
"There is a large shortfall of available dwellings," he said.
"With the local community and government in partnership responding to this critical matter, we are looking forward to the agreement delivering more housing, along with economic, social and cultural opportunities for Peak Hill Local Aboriginal Land Council and the Aboriginal community.
"Together, we can make a powerful difference."
"Phyllis Miller and her team at council have done so much work ... to unlock these opportunities and for Forbes to be front of the pack.
"We all know that housing is a real challenge the state, in particular in regional NSW."