Eight two-storey homes will be built on land bordering Ullswater Court, while a further 25 bungalows will be built on land between Eastfields and Towneley Court sheltered accommodation.
The development has drawn protests from some neighbouring residents who claim they were not properly consulted.
The new housing comprises 14 two-bed bungalows for affordable rent, four two-bedroomed bungalows for market rent, seven two-bedroomed bungalows for sale and eight three-bedroomed houses for market rent. Building is expected to be completed by March 2015.
Derwentside Homes director of operations Steve Melvin said: “As part of the pre-planning process, Derwentside Homes held a public consultation event in November 2012.
“At this meeting we exhibited full site layouts and plans of the proposed dwellings, including street scenes to give local stakeholders a real feel for the quality of the proposed development."
Funding has been received towards this development from the Homes and Communities Agency’s (HCA) Affordable Housing Programme and phase one of the Build to Rent Programme.
Stuart Timmiss, of Durham County Council, said: “Members of the area planning committee approved the application in October, subject to a Section 106 agreement, which has just been finalised.
“Following the recent completion of the Section 106 agreement we have now written to those who (formally) objected to confirm that the scheme has been approved and can now go ahead.”