Guernsey States will fund the £6.5 million purchase of Kenilworth Vinery as they try to tackle an island-wide housing crisis.
It is hoped the development by Guernsey's Housing Association could create up to 135 affordable homes, mostly one and two-bed accommodation.
The plans would create part-ownership homes, social rental and key worker housing.
More than 500 households are currently on the waiting list for affordable homes.
Kenilworth Vinery off Saltpans Road in the Vale has been identified as a priority area for housing under the Island Development Plan and already has an approved framework which should help with planning approval.
The Housing Action Group are looking at other sites, including some which are owned by the States.