The 195 homes will be delivered by Hungate Regeneration Ltd – a joint venture between Lend Lease and Yorkshire-based group Evans.
The riverside homes will be built as part of a major regeneration within the city’s walls and will include retail and commercial space alongside the 720 new homes in total.
The scheme will see 150 jobs created during construction for the local community.
Richard Cook, Lend Lease’s head of residential, said: “The start of construction on these homes marks an exciting step in the wider regeneration of the area.”
Roderick Evans, managing director of Evans Property Group, said: “As long-term investors in York we are delighted to be working in partnership with Lend Lease to deliver this major scheme.
“As well as providing further high quality homes in the heart of this historic city, the development of phase 2 will also see the creation of new jobs.”