Guinness Partnership is on site with 18 affordable one- and two-bed homes in Lancaster aimed at easing supply of properties for housing tenants impacted by the spare room subsidy.
The £1.3m development in the Scale Hall area of the city will create six two-bedroom houses and 12 one-bedroom flats arranged as semi-detached pairs.
Designed by Lancaster-based Harrison Pitt Architects, the homes are being built on an area of open space within an existing estate between Brindle Close and the Tavern at Scale Hall public house.
Blackpool-based Melrose Construction is building the new homes on behalf of the Guinness Partnership, a national housing association with a local base in Lancaster.
Richard Parker, architect at Harrison Pitt Architects, said: "Recent changes in government housing policy are fuelling a demand for homes with fewer bedrooms, but it's important for housing design to remain flexible and adaptable to meet future needs.
"The energy-efficient homes in this development will help address these local housing needs. The one bedroom flats feature a design which means they can easily be converted back to three-bedroom houses if needed."
Allan Ramsay, director of investment and regeneration at the Guinness Partnership, said: 'We're really pleased to be able to commit additional funding in Lancaster where we know there will be a strong demand for these new homes from local people. We're also grateful to the city council for supporting our bid to the Homes & Communities Agency who are contributing around £270,000 towards the scheme costs to make the rents genuinely affordable."
The new homes will be insulated well above current buildings regulations and will also adhere to Secure by Design principles which focus on safety and security. Work on the new homes is expected to be complete by January 2015.