Sunderland City Council has appointed construction company Tolent to build 17 affordable bungalows, 16 of which will be specially adapted to provide homes for people with physical disabilities, and one for general needs at Cork Street in Hendon.
Alongside these, the City Council will build a new £1.4m day centre to support people with physical disabilities across the city.
The Day Centre and the first eight of the bungalows to be built as part of the scheme have an anticipated completion date of summer 2021.
The new homes are being built with the help of £765,000 of Homes England funding secured for the project by the City Council to help build new social housing in the city.
The council confirmed its plans to move into the rented housing sector late last year. The project is one element of a wider £59m programme for a range of affordable housing projects across Sunderland over the next five years.
Councillor Rebecca Atkinson, Cabinet Member for Dynamic City at Sunderland City Council, said: "I'm delighted to see the start of work on the first council housing new build development in Sunderland for almost 40 years. The fact that this is progressing as planned is all the more remarkable given the challenges of the last few months.
"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 to see the council playing 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 really excited to see our first housing project take shape."
Chris Price, regional director for Tolent, said: "It's great to be on site today with our partners and to see works start on what is set to be another fantastic development in the city.
"As well as delivering a high quality build, we'll also be working to bring a greater social value to the project by delivering a range of activities with the local community including: health and safety talks, careers events, research projects and work experience opportunities."