Homeless services in Sydney city will see their budgets slashed by millions under a new “needs-based” funding model.

The distribution of the state’s $136 million annual budget for homelessness services will change from next year.

The state government argues funds should flow to areas where homelessness originates – places like western Sydney, the Hunter and Central Coast – and where there is greater socio-economic disadvantage, drug and alcohol abuse and domestic violence.

Community Services Minister Pru Goward says this would ensure people in those areas who are homeless or are at risk of homelessness can find help locally.

“We want to help end the all too common drift of homeless people to the inner-city,” Ms Goward said in a statement on Wednesday.

Under the changes, services in the Hunter and New England region will see their funding boosted from $16.4 million in 2013/14 to around $18 million annually from 2014 to 2017.

The mid-north coast will also see a boost in funding, jumping from $3.48 million to almost $4.8 million annually.

But in Sydney, services will see their funding slashed from more than $45 million in 2013/14 to just over $39.5 million per year from 2014 to 2017.

Ms Goward said $2 million was distributed to services throughout the year to help them prepare for the changes.

Tenders for the funding will close on January 28, with new service contracts coming into effect from July 2014.