Does Ms Tiedeman, 72, a descendant of the maritime families that "built Australia", accept a government offer to stay in the historic suburb by swapping her home overlooking Sydney Harbour for a cramped one-bedroom apartment?

A letter will arrive on Monday offering the deal to the 90 public housing tenants remaining in Millers Point.

Minister for Social Housing Brad Hazzard said it was a "massive shift for the government", which had previously declared all tenants would be evicted and their public housing homes sold.

But there is a catch. Only 28 apartments are on offer. Not everyone can stay.

The letter will suggest the most vulnerable – the elderly and unwell – apply. They have four weeks.

"It's Sophie's choice," said Chris Hinkley of the Millers Point community working party, and a resident for 44 years.

"It's bloody unfair," said Ms Tiedeman on Saturday.

"It won't please everyone," Mr Hazzard said. "But its a massive shift for government, and we are trying to find a balance."

He said the sandstone cottages in Millers Point were a "goldmine" for the government, which needed money to buy more public housing in cheaper suburbs to reduce a 60,000-person waiting list.

But Mr Hazzard said he was persuaded, over scones and cream in residents' homes, by their argument that it would be "a huge challenge" for the elderly to move out of the area.

The 28 units to be quarantined from the sale were built in the 1990s, so have no heritage value and little appeal to well-heeled buyers who have been paying up to $5.5 million for the larger terrace houses.

Residents were told of the government offer at a community meeting on Saturday.

Mary Vo, 76, broke down in tears afterwards. "I can't move. I am very unwell," said the widow.

Mr Hinkley said moving to the tiny units on the corner of Argyle and Kent streets would bring relief from stress for some residents.

Seventy five per cent of the residents have already been relocated, as the sale of their former homes fetched $100 million this year.

"Property values have exceeded expectations and that has helped us in making this decision," said Mr Hazzard. "We are achieving the targets and the money raised to build 1500 homes in other areas. It is allowing us to be flexible."

Sydney MP Alex Greenwich said keeping the units was a "good step".

"The minister's approach has been one of compassion, but more properties are needed to ensure the most vulnerable tenants can age in place, in their community," he said.

Sydney lord mayor Clover Moore said: "I appreciate the efforts that Minister Hazzard has made to persuade Treasury to not sell these 28 properties, but we are still losing too many homes for social housing tenants in Millers Point."

Ms Tiedeman remembers swimming in the harbour off the metal wharf as a child as the boats came in, and said the splashing scared off the sharks.

Her father worked for the Maritime Services Board, which provided the Millers Point homes for its workers, in a garage opposite her Dalgety Terrace home.

The garage was knocked down to make way for glitzy apartments with million-dollar views a few years ago. She said the new residents don't stop in the street to say hello.

"I came here with nothing and I will leave with nothing," she said, shaking her head at the $10-a-schooner prices at the newly reopened Hotel Palisade around the corner.

As a young girl dating, she recalled beaus would offer her the taxi fare rather than offer to walk her home to Millers Point, fearful of its reputation.

But she said she always felt safe, because she could knock on any door and there would be help.