Data on hospital admissions, prescriptions and visits to GPs will be used to see what difference home improvements make to people's health.
A study will compare the health of council and housing association tenants in Carmarthenshire before and after their homes are upgraded.
The research was highlighted by Wales' outgoing chief medical officer in the week he publishes his annual report.
Dr Tony Jewell wants a "healthy homes" strategy, with smoking a priority.
Anonymous data will be compared with social housing residents in other parts of Wales to analyse how home improvements affect health.
A Carmarthenshire council project will bring homes up to a national quality standard by fitting better locks and lighting, kitchens, bathrooms, installing downstairs toilets, double glazing, insulation and making sure garden paths are in good condition.
The NHS will work with researchers at Cardiff and Swansea universities to see what difference it makes to the health of residents.
The Welsh government cited a similar trial in Wrexham in 2004, involving about 200 asthmatic children.
It found better ventilation and heating at home improved children's health and quality of life, leading to them taking less time of school.
The chief medic said that having promoted good health in schools, at work and public places, it was now time for the Welsh government to focus on homes.
Dr Jewell, who will visit Carmarthenshire on Monday, said the population aged over 85 will double by 2035, having an impact on the treatment they require from the NHS and the support they need to continue to live at home.
He said: "Many factors can affect our health at home: poverty, second-hand smoke, fuel poverty and energy efficiency, damp, food hygiene, the threat of crime, such as domestic abuse or a burglary, or even the fear of crime.
"The Welsh government is taking action on all of these issues. I would like to see them brought together in a single healthy homes strategy, to co-ordinate action for the most vulnerable people in Wales.
"I believe tackling smoking in the home needs to be a priority as part of this."
Dr Jewell will publish his final annual report on Tuesday. He is due to step down over the summer.