The government will increase the rate of Commonwealth Rent Assistance by 15 per cent, or $31 extra a fortnight, for people leasing their home.
This is far below the 50 per cent increase housing bodies hoped for.
Prime Minister Anthony Albanese defended the increase, saying it was one measure in a suite of policies aimed at addressing housing supply and affordability.
"It will make a difference to people who are under pressure due to rising rents," he told ABC News.
Mr Albanese urged crossbench senators to back Labor's key election pledge, a $10 billion housing fund which would build 30,000 affordable homes.
Negotiations with the Greens are under way with the bill before parliament.
"These all put together show a government that is committed to dealing with the pressures that are there on housing," the prime minister said.
National Shelter chief executive Emma Greenhalgh said housing ministers needed to bring back meaningful rental reform to a national cabinet meeting in October.
"We would like to see tenants put at the centre of that," she said in Canberra, pointing to the need to rein in rent rises and tackle unfair evictions.
Homelessness Australia chief executive Kate Colvin said it was "really urgent" for the government's housing legislation to pass, but a greater commitment was also needed to deliver more homes.
On the rent assistance increase, Ms Colvin said every extra dollar would make a difference, but renters would still left struggle.
Treasurer Jim Chalmers said the government's plan to manage housing affordability had three parts, including the housing fund, tax breaks for build-to-rent properties and broader cost of living relief measures.
"The idea that the parliament wouldn't support the building of tens of thousands of homes really to me just beggars belief," he said of opposition to the housing fund.
He said he was proud to include in the budget the biggest increase in rent assistance for three decades.
"I know that that won't make the pressures in the rental market disappear but it will help people get through while we try to build more supply, which is our overwhelming objective when it comes to the housing market," Dr Chalmers said.
Jocelyn Martin, from the Housing Industry Association, said social and affordable housing had suffered from "prolonged under-investment".
She said the government's proposed housing fund was an important step towards managing affordability.
"Greater investment in new housing servicing this part of the market will assist in reducing the number of households experiencing housing stress," Ms Martin said.
Business Council of Australia chief executive Jennifer Westacott said Australia had lacked innovation in housing for a long time.
She said the solution lay in releasing more land, speeding up planning processes, reducing taxes and charges and rolling out innovative financing and construction.
