The council confirmed its plans to move into the rented housing sector late last year and construction work will begin on the first phase this month.
Construction company Tolent has been appointed to develop the first council housing development at Cork Street.
This development will deliver 26 affordable bungalows, 16 of which will be specially adapted to provide homes for people with physical disabilities, and one general needs bungalow.
Alongside the new bungalows the council will build a new £1.4m day centre to support people with physical disabilities across the city.
The council is planning a wider £59m programme for a range of affordable housing projects across Sunderland over the next five years.
Councillor Rebecca Atkinson, Cabinet Member for Housing and Regeneration at Sunderland City Council, said: "It is fantastic to see the plans for our first council housing new build development progressing at such a positive pace despite everything that we have dealt with recently.
"The new homes at Cork Street, along with the new day centre, will provide much needed accommodation and support services for people with physical disabilities.
"I am proud that the council can play its part in providing homes and support for our residents, particularly those who are vulnerable and disabled.
"One of the key aims of our ambitious ten year city plan is for more and better homes and Cork Street will contribute to this. “We are looking forward to working with Tolent on the delivery of this project and I am excited to see our first housing project take shape."
Chris Price, regional director for Tolent, said: "We're delighted to be working with Sunderland City Council on such a significant project that will contribute positively to so many in the city.
"Tolent has played an integral part in the regeneration of Sunderland, helping to shape the cityscape with innovative, unique and world-class buildings including Echo 24, River Quarter, Hilton Garden Inn, the award-winning Beacon of Light and most recently The Beam, the first office building to be developed on the site of the historic Vaux Brewery. It's great to be continuing our work in such a fantastic city and we're looking forward to getting started on site."
Work at Cork Street is due to commence at the end of July 2020.
Homes England are pleased to support and welcome new affordable housing within Sunderland.