Figures from the Australian Institute of Health and Welfare (AIHW) show social and community housing for low-income Australians is not reflecting the needs of the population.
One in six properties were classed as 'underutilised', according to the figures.
Wendy Hayhurst, NSW Federation of Community Housing, said that means many properties are not "strictly empty, it's just not well used".
"It's more about under-occupation — so that's a large number of people living in homes that are too large for them technically, so they've got more bedrooms than they need," she said.
"We've got a very rapidly ageing population, not just in public housing and social housing, but across Australia.
"And as they grow older [and] their children move away, they are [left] living in accommodation that's too large for them.
"It's not their fault, there just isn't the accommodation that's smaller near where they need to be — near their supports, hospitals. So they're stuck really."
But while publicly funded beds are increasingly left empty, the number of people on the waiting list continues to grow.
In 2016 more than half of the priority applicants waiting for public housing were forced to wait more than three months for a property.
Ms Hayhurst said there had been some examples of state governments coming up with solutions to the issue.
On a recent visit to Brisbane, she visited a new development for elderly, lone residents — the result of a partnership between the community housing sector and the government.
"It's just lovely, 57 one-bedroom units, self-contained, very safe, with a lovely courtyard in the middle," Ms Hayhurst said.
"They've persuaded a lot of people to leave their larger accommodation, which could be then freed up … for people on the waiting list.
"It's not difficult, it's not a crisis, there are solutions."
But she said the project was only made possible by land being released by Brisbane's Government, a move she urges other states and territories to mirror.
'Major cause of homelessness'
Katherine McKernan, from Homelessness NSW, said underutilised properties were one of the causes of a rise in homelessness.
"There was a 35 per cent increase in the number of people accessing homelessness services over the past two years," she said.
"And in some areas, you can wait between two and 10 years for social housing."
But Ms McKernan said it was not the fault of the tenant, and the solution rested with government planning.
"We really need the federal government to invest in social housing, and we really need the federal government to increase the funding that it's providing for homeless," she said.
She said there needed to be an increase in funding directed towards construction of single bedroom dwellings.
"Really what we need is an expansion of social housing and an increase in smaller dwellings that suit singles and couples, so that this issue can be managed," Ms McKernan said
"There's such a huge waiting list and such demand on the stock — it's not a simple matter of just moving single people into smaller dwellings, because the smaller dwellings just aren't available."
In this year's budget, the Federal Government announced reforms to Commonwealth-state funding arrangements which tie funding to concrete outcomes on housing affordability.