Eighteen new homes will be built in Ledbury as part of New Mills Way, at Frome Brook Road.
The development is a mixture of two bedroom flats and two/three bedroom homes.
Twelve of the homes will be available to rent while the remaining six can be purchased on a shared ownership basis.
Birmingham-based contractors Lovells has already started work on site, which is due to be completed next spring.
The project is a partnership between Herefordshire Council, Hereford-based housing association St John Kemble, West Mercia Housing Group and the Housing Corporation, which has provided more than £725,000 funding.
The remaining funding has been met by the West Mercia Housing Group through private finance.
Once complete the homes will be offered to people in housing need and will be advertised through Homepoint Herefordshire, an affordable housing agency.
“People across Herefordshire have found it increasingly difficult not only to get onto the property ladder but also to find suitable housing accommodation,” said Cllr Olwyn Barnett, Cabinet Member (Social Care Adults and Health).
“Property prices have continued to soar well above the average salary level for the area and that has posed a lot of serious problems for young people, families and other people indigenous to Herefordshire who want to live and work in the county,” she added.
“This development will help to ease that situation and provide new hope and a new beginning for many people.”
Kemble Housing will be responsible for the management of the rented properties once they are completed.
As part of the development, students from John Masfield School interested in a vocational career in construction have been invited on site to see how builders work.
Anyone interested in this scheme should keep looking for the Homepoint advert in the Hereford Admag, which will advertise these properties nearer to completion.