Cuba is launching a plan to subsidize the construction and repair of private homes, an effort the communist government hopes will lead to better use of limited funds and stimulate private enterprise.

Under the program, citizens will be eligible for as much as 80,000 Cuban pesos ($3,300) in aid to build a family home, though most will get far less.

Those whose homes have been damaged by hurricanes or other natural disasters will get priority under the plan, which was published into law in the Official Gazette on Wednesday. Recipients of the subsidy will be required to demonstrate economic need, and all funds will be held in a state run bank account to ensure they are spent properly.

Previously, the government would pay for home repairs without regard to the recipient’s economic situation in a program that was rife with corruption and inefficiency and contributed to a severe housing shortage on the island.

“This is another step to eliminate unnecessary and excessive subsidies by compensating only those people who need them,” said the Communist Party daily Granma, which also reported on the changes.

According to government statistics from 2005, the latest available, the island had a shortage of some 500,000 homes to meet the needs of its 11.2 million citizens. Yet in 2010, only 33,000 new homes were built, about two thirds of them by the state.

The shortage has meant that many live in crowded multigenerational apartments that are crumbling from neglect. Even divorced couples often have trouble disentangling themselves, forced to cohabitate for years because there is nowhere else to go.

The new plan is the latest in a raft of economic reforms enacted by President Raul Castro over the past year or so. The Cuban leader has legalized a real estate and used car market, and encouraged hundreds of thousands to go into business for themselves. The program comes on the heels of the government’s approval of bank loans for Cubans wishing to start a business or fix up their home.