Dudley Council was granted planning permission earlier this year to convert New Swinford Hall in Stourbridge into 18 apartments with either one or two bedrooms.
New Swinford Hall was used previously by the council to provide stepdown accommodation for people well enough to leave hospital but not well enough to return home.
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The new homes are being built within the existing shell of the building and the exterior given a modern makeover.
All 18 apartments will be available to rent to people on the council's housing waiting list and will be advertised nearer completion.
The project is expected to cost in the region of £2 million.
Balvinder Heran, deputy chief executive at Dudley Council, said: "Contractors have been busy getting the site ready ahead of work starting on site this week.
"This is an exciting milestone in a project which will see us add much-needed affordable homes to our existing housing stock and breathe new life into an old building. "
