Governor Francis W. Sargent will propose Tuesday that the Legislature set up a state agency to provide relocation housing for those whose homes have been demolished to make way for state, federal, and municipal construction in Massachusetts.

The bill-which calls for $700 million to finance a Replacement Housing and Community Redevelopment Corporation-would be retroactive to 1967 and would stipulate that by June 1973 comparable relocation housing be provided in nearby areas before any eviction for public construction takes place.

The bill would also empower the state to construct housing-25 per cent of which would be low and moderate income-on large unused tracts throughout Massachusetts. It provides for extensive use of eminent domain to procure land for housing, and would allow bypassing of "restrictive" building codes and zoning ordinances.

Seven Members

As proposed, the new housing corporation would be an independent state agency whose seven-member governing board would be appointed by Sargent. A two-thirds majority of the board would make decisions regarding particular uses of eminent domain, but the corporation would generally "respect regional planning guidelines," Albert L. Kramer, urban assistant to Sargent, said yesterday.

"The big problem today is that there's nothing being done for people who are being disturbed by urban renewal and highway development," Kramer said. "The people-mostly the poor-who are hit with these things have no place to go and never get relocated," he added.

5000 Displaced Families

Kramer explained that government construction presently displaces 5000 families per year. Until now, he said, "we have not really built low-income housing in Massachusetts that we can speak of."

"If the bill passes the Legislature, plans for construction of relocation housing would go into effect immediately. But provision of alternate housing in advance of public development would not take place before 1973 because "we've got enough to catch up with from 1967," Kramer said.