Community groups will have access to the same subsidies as state house tenants under a new bill introduced as part of Budget 2013.
The Social Housing Reform Bill will allow community groups such as churches, iwi and the Salvation Army to access a fixed pool of subsidised tenancies and fund their own social housing.
Work and Income will assess tenants to see if they qualify and, if eligible, will then pay 25% of their income in rent.
The Government will top up the difference to the owner of the house, whether it be Housing New Zealand or a community provider.
Mr English says many community groups have already expressed an interest in setting up their own social housing.
"We're seeing the churches showing an interest, iwi showing an interest, the Salvation Army Housing Foundation, who've never been able to get the income-related subsidy for people whom they house.
"They'd often do a better job of managing assets but, more importantly, supporting the tenants than government does."
Habitat for Humanity New Zealand chief executive Claire Szabo told Radio New Zealand's Checkpoint programme the Budget signals the Government sees an important place for the community sector alongside the state sector for the delivery of social housing
But she says it redistributes the money, rather than increasing the amount of money overall for social housing - "So this initiative on its own isn't going to address the scale of housing need."