The funding will also help deliver over £1bn of private sector investment into housing in Fir Vale, Manor, Norfolk Park and Parson Cross.
Councillor Julie Dore, leader of Sheffield City Council, said: “We all know that there has been a failure in this country to deliver the housing that we need, particularly for our young people and families.
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“That is why we are acting locally through our programme to create an additional 1,000 new council homes in Sheffield to kick-start housing development in the city where we have land available.”
The council previously set up the Sheffield Housing Company in 2011 in partnership with Keepmoat and Great Places to promote housebuilding in Sheffield.
So far, the partnership has delivered more than 400 new homes, and work on Cutler’s View and Brearley Forge is benefiting local businesses by £18m.
As a result, 200 jobs have been created with 46 apprentices.
Ian Hoad from Keepmoat said: “This loan from the city council is a fantastic opportunity for the company and it shows the commitment that the council has to providing quality new homes across the city.
“It will enable us to progress around a further 851 homes on 12 brownfield sites.”