Centaurea Homes Limited aims identify sites that big-name housebuilders have shunned and transform them by winning planning permission and appointing the contractor.
By cutting out the middle man, it hopes to boost the borough’s housing stock and turn a profit - using the cash to support other income streams.
The firm has already identified one site it wants to develop under what council chiefs describe as a pilot project.
It has lodged a planning application to construct 62 two, three and four-bed detached and semi-detached homes at Eskdale Drive, on the Lakes Estate, Jarrow.
They would be built on land left vacant by the demolition – and the search for a contractor has started.
The council insists that by owning its own company, it has the potential to maximise returns available from the housing development sector.
A spokesman said: “South Tyneside Council has established Centaurea to develop high quality housing for sale within the borough.
“The council believes that by having an option to develop through its own company it will be able to choose from a full range of options for each developable site that it owns and therefore will maximise its returns and potentially secure the development of sites that might not be as attractive to a commercial developer.
“Profit made by Centaurea will either be reinvested in the company to allow for further development or distributed to the council as shareholder.
“Such a dividend will form part of the council’s income and will be used for its purposes within the borough to supplement other income.”
The company, which will only operate in South Tyneside, has not set a target for the number of properties it hopes to build each year.
Centaurea operates by securing loan finance from the council on which it will be charged interest, providing a return.
The local authority would not confirm the terms of loans due to commercially confidentiality, but described them as being on a commercial basis.
It currently provides around 17,000 homes for social rent, one in four of all homes in South Tyneside.
And it delivers approximately 100 new affordable homes each year, mainly through South Tyneside Housing Ventures Trust,
The trust is an independent, private, not-for-profit company set up in 2013 with help from the council and its housing arm, South Tyneside Homes.