Housing association believe housing is working with Partner Construction to build 59 homes in Peterlee.
The Stephenson Mews development is on a brownfield site on the edge of the town's North East Industrial Estate, which has been vacant for a number of years, and will see 23 two-bed, 30 three-bed and six four-bed homes constructed in Stephenson Road.
Six of the new homes will be bungalows to meet growing needs for wheelchair accessible homes.
The homes will be available for Affordable Rent and Rent to Buy tenure.
Kate Abson, director of development at believe housing, said: “These new homes build upon our commitment to provide high-quality affordable properties in towns and villages across County Durham.
“We have firm plans to deliver more than 1,250 new homes by 2026, which is expected to support more than 3,800 jobs and 40 apprenticeships during construction.”
Easington MP Grahame Morris attended the ground-breaking ceremony.
He said: “I’m excited about this development as it addresses local need with a mix of affordable homes, and I’m a huge advocate of developing brownfield sites wherever possible in favour of building on greenbelt.
“This site will also have the benefit of existing bus routes, shops and services and being close to the A19.”
Graeme Walton, contracts manager at Partner Construction, said: “We are delighted to have started building at Stephenson Road. Ground-breaking marks an important milestone and I am delighted building work can now start in earnest.”