Former premier Mike Baird last year asked the Independent Pricing and Regulatory Tribunal to examine rents paid by public housing tenants.

In a draft report released on Tuesday, IPART found that public housing residents could not afford to pay more than they already do, which is about 25 per cent of their income.

As a result, IPART identified a gap of $950 million a year that needed to be filled to prevent the state's existing public housing system from eroding further.

The executive officer at Shelter NSW, Mary Perkins, said the significance of IPART's report was that it recognised the public housing system could not continue to be managed by the existing funds made available to it.

"They can't get more out of the system," Ms Perkins said. "And having been run down for in excess of 20 or 30 years, the amount of money needed to fix the system is quite a lot."

About 60,000 people are on the waiting list for public housing in NSW.

But after earlier indicating that it might consider adjusting rents depending on where public housing tenants lived, and the size of their dwellings, IPART on Tuesday said there was "little scope" to change the way in which rents were set.

Instead, IPART recommended a clearer system in which governments acknowledged that they needed to cover the gap between the rent paid by tenants, and the cost of providing housing.

"We note that social housing providers, including the NSW government, are already implicitly paying for this gap through a combination of operating losses, deferred maintenance, unfunded depreciation and forgone returns on their assets," IPART said.

The pricing regulator, which will consult on its draft recommendations before handing a final report to the government in June, also argued that future government housing assistance should be targeted toward those on the lowest incomes, as opposed to those on moderate incomes.

The state and federal governments have been considering increased support for so-called affordable housing models, where dwellings are leased to people on below-average incomes at less than market rates.

But IPART said a "government-subsidised affordable housing product" was not consistent with its review, as it diverted "available resources for housing assistance away from people in the greatest need."

Wendy Hayhurst, the chief executive of the NSW Federation of Housing Association, said "moderate income earners cannot be forgotten".

"They are not going to get into home ownership very easily," Ms Hayhurst said.

The Minister for Social Housing, Pru Goward, said she would "listen carefully to the community" before considering any change to the housing system.

"I want to reassure social and community housing tenants, applicants and the sector that the NSW government will only consider and implement changes to the system that are fair and help to improve their lives," Ms Goward said.