Construction has begun on a €40 million affordable housing project in Cork city which will deliver 116 two and three-bedroom homes and 37 apartments for social housing over the next two years.

The project is the first to be approved for support from the Government's Serviced Site Fund, through which €5 million will be paid by the Department of Housing, Planning and Local Government to cover the cost of up-grading the local road network and providing drainage services.

The Taoiseach, Leo Varadkar, turned the sod on the project at Boherboy Road in Mayfield in Cork this afternoon, along with Housing Minister Eoghan Murphy, Tánaiste Simon Coveney and the Lord Mayor of Cork, Councillor John Sheehan.

The 24 two-bedroom homes will be sold for €198,000 each, while the 92 three-bedroom homes are priced at €223,000.

The houses and apartments are being built on a 13-acre site, owned by Cork City Council, which says it has more than 1,000 social and affordable homes currently under construction.

Mr Varadkar said the 153 houses in the scheme will be among 2,000 new affordable homes being provided by the Government by the end of next year.

Speaking at the event, Mr Varadkar said: "The supply of new homes is steadily increasing all the time; we now expect about 22,000 new homes will be built this year. More than 50,000 new homes have been built over the last 3 years.

"As supply increases, we need to ensure we have new housing of all forms - homes to buy, homes to rent, social housing - for people on the housing list and, of course, subsidised affordable housing.

"We set up the Serviced Site Fund to increase the supply of affordable housing schemes and these are now becoming a reality around the country."

Cork City Council Director of Housing, Brian Geaney said the support of the council in assembling the land for the development and providing it at cost, along with access to a €5 million grant from the Government's Serviced Site Fund were critical ingredients in the project.