The boards of Manchester-based housing associations City South Manchester Housing Trust and Eastlands Homes are in merger talks to create a 12,400 home group.
City South and Eastlands Homes have begun formal discussions and have started a six week consultation with their tenants and leaseholders.
Both housing associations were set up following a stock transfer of homes from Manchester City Council. Eastlands Homes was founded in 2003 and City South in 2008.
Eastlands has around 8,000 homes in the Beswick, Clayton, Openshaw, Ardwick, Gorton, Levenshulme, Longsight and Rusholme areas of east and south Manchester, while City South has 4,500 properties in Hulme, Fallowfield, Moss Side and Whalley Range.
The new group structure would see City South and Eastlands Homes keep their own identities as subsidiaries, but would come under the umbrella of a parent organisation.
Dave Power, chief executive of City South Manchester Housing Trust, said: "We want to use our experience and partnerships across all sectors, not only to invest in new homes and services, but also to complement and add social value to the City of Manchester's ambitious growth agenda and ensure our residents and neighbours benefit."
Sheila Doran, chief executive of Eastlands Homes, said: "The two organisations have similar ambitions and values, and share the view that building communities is what matters most to us.
"There is also a logical geographical fit as well as we are situated relatively close together. We will take our different strengths and areas of expertise and bring them together to create a very effective partnership."
The companies said the merger would also allow them to offer better value for money, generate millions of pounds, increase the financial strength of the businesses, have a stronger voice in the region and housing sector and continue to retain and attract the best staff.
Both organisations will work closely with their funders and regulators on the legal, financial and governance arrangements in the coming months, with the proposed merger planned to take place in April 2015.