The council has already sold the 17 units in the Clare St complex in Oamaru and yesterday its committee of the whole recommended it sell the four-unit Dacre St complex.
The committee also recommended the Waihemo Community Board be consulted about the community housing needs in Palmerston - which has 22 units - and the Waihemo ward.
The council owns 91 units at Oamaru, Hampden and Palmerston, the majority built in the 1970s and 1980s. While it has been upgrading units, some are no longer suitable for modern requirements.
Property manager Dougal McIntyre said the Dacre St units were good units for the private sector to operate.
The council cleared $610,000 on the Clare St units and the Dacre St units had a rateable value of $195,000.
The proposed complex in Aln St could consist of six units, four two-bedrooms and two one-bedrooms. One unit could be two storeys.
Mr McIntyre said Dunedin architect Ian Butcher had provided a design for the units. An initial estimate was $900,000.
However, if the project went ahead, the final design and cost would be submitted to the council for approval.
The proposal to sell the Dacre St units and build in Aln St would be part of the council's long-term plan, which would be subject to public consultation.
"The council remains fully committed to the delivery of community housing and support," Mr McIntyre said.
However new restrictions on government funding meant the council needed to look at new ways of funding and maintaining workable and safe community housing across the district.
