Southwark's cabinet has endorsed plans to spend £44.5 million provided by the developers of prime riverside sites to build 286 new homes across the borough by the end of 2015.
In May Southwark's Labour administration announced its intention to build 1,000 new council homes by 2020 and this week cabinet agreed to proceed with the first set of proposals for nine sites across the borough for completion in the next three years.
The council estimates that the nine sites can accommodate 286 homes including 173 council homes and 44 shared-ownership units.
"This means developing what I think is truly affordable housing for people who are on the lowest income scales in our borough ... as opposed to so-called affordable housing where the rents charged are anything but," said council leader Peter John.
Planning policy means that some of the homes built under the scheme will have to be for market sale and the proceeds will be reinvested in further home-building.
The project will be largely funded by the £44.5 million Affordable Housing Fund the council has created by its controversial policy of pooling the in-lieu payments made by developers at Neo Bankside, King's Reach, One Tower Bridge and 100 Union Street.
Asked about the formula to determine the payments made by developers, Steve Platts, the council's director of regeneration, said: "The general guidance is for high value developments in the north of the borough along the river we would expect to receive approximately £100,000 per habitable room" for each affordable home the developer would otherwise be obliged to provide on-site.
"For a 2-bedroom affordable unit we would expect a payment in the order of £300,000 with one habitable room being the lounge," he added.
Two of the proposed sites for new council homes – Long Lane and Willow Walk – are in SE1 but others, such as the Nunhead Community Centre, are nearly four miles from the private developments which have provided the cash.
However, the council says it is looking at more potential locations in SE1 for future phases of the scheme.
"This time next year we expect to be bringing forward phase two of the programme and we are already investigating sites – including sites in Cathedrals ward – which can be included in phase two," said Steve Platts.
Cllr Claire Hickson asked officers whether they would be working with local neighbourhood planning groups to identify sites for new council housing.
"We have been working with them – particularly in Bermondsey – on the development of their neighbourhood plan and in Bankside we will be developing those relationships to identify opportunities," said Mr Platts.
Mr Platts also explained how the council planned to allocate the new homes: "One of the key elements ... is a local lettings policy which earmarks 50 per cent of the new units for rehousing needs within the boundaries of that estate in order to create tenant mobility on the estate.
"People who are over-occupying or under-occupying within the estate can potential move to a new unit within the estate, keeping their neighbours and freeing up a unit on the estate for reletting."
Southwark's willingness to accept cash in lieu of on-site affordable housing has been criticised by the Mayor of London Boris Johnson.
He said this week in a written answer to Lib Dem London Assembly member Caroline Pidgeon: "Boroughs should not accept cash in lieu of building new affordable homes. As I said in my response to MQ 2539/ 2012 'we are now insisting that there is a concrete plan to build new affordable as part of the deal, even if it is off-site'."
The council is currently in negotiations with City Hall over the borough's proposal to accept £29 million from developer St George to cover the complete absence of affordable housing in its One Blackfriars scheme.
"It makes me furious that they are trying to make the north of the borough full of private flats whilst they put all the social housing elsewhere," said Simon Hughes MP in a letter to local residents this week.