A total of 41 homes are being built on the site of the old Shepway Resource Centre in Military Road, Shorncliffe Industrial Estate Folkestone.
Thirty-five of those will be offered to potential council tenants upon finishing next spring.
Planning permission was given for the derelict site by Shepway District Council planners in July.
The area will hold 23 houses and 18 flats, with access and landscaping.
District council leader Cllr David Monk joined Martin Sandall, the managing director of building contractor Jenner last week to shovel the first soil on the site.
Jenner, who will be building the homes, will keep the remaining six properties to sell privately.
Cllr Monk said: “This makes excellent use of what was a redundant site.
“It’s not only providing much-needed new homes, but is sustainable in the true sense of the word.
“Old materials are being saved and used again and it’s giving a new lease of life to a brownfield site.
“I look forward to the new residents moving into these homes.”
The building work has been made possible by a seven-figure funding deal with the Royal Bank of Scotland, although the exact sum involved has not been revealed.
The new development incorporates parking and some homes will have their own driveways.
Mr Sandall added: “Jenner are delighted to see this partnership opportunity come to fruition after the significant efforts of both parties.
“It’s great to see that two local organisations can come together to deliver affordable housing for the Shepway community.”
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