Plus Dane Group has started work on a new housing development at Elworth Court in Congleton, Cheshire.
Elworth Court previously consisted of 34 bedsits for elderly people, along with wardens' flats and communal facilities.
Plus Dane said the scheme became unsustainable due to its dated design, in particular the size of the units, which where were no longer desirable to prospective residents. Following consultation, the decision was taken to demolish the current accommodation to make way for new housing.
Plus Dane will develop eight new family houses on the site, consisting of four two-bed properties and four three-bed properties, all for affordable rent.
The former residents at Elworth Court were all consulted during the planning process and offered alternative accommodation, with a number of residents choosing to take up residency at the newly completed Heath View in Congleton, a £5.9m care home scheme also led by the Plus Dane Group.
The Congleton scheme is being part-funded by a £400,000 grant from the Homes & Communities Agency and supported by Cheshire East Council.
Claire Griffiths, managing director of regeneration and commercial development at Plus Dane Group, said: "This project will address a key need for more quality affordable family housing in the area and, through replacing a dated and underused building with a high quality new development, support ongoing regeneration in the town."
Stoke-on-Trent based contractors J&S Seddon is the contractor carrying out the work, which is due for completion in June next year.
Plus Dane Group owns and manages over 16,000 homes across Merseyside and Cheshire.