Yesterday English Partnerships (EP), the national regeneration agency, announced that more than 1,000 new homes will eventually be built on the 55ha Park Prewett hospital site.
In addition, the scheme will include about 130 houses to be delivered through John Prescott's Design for Manufacture competition - the Deputy Prime Minister's much-anticipated, and much-discussed, £60,000 house challenge.
The Hampshire hospital is one of 67 abandoned NHS sites currently on EP's books, and the development has also been earmarked for the first tranche of homes under the government's multimillion-pound First Time Buyers Initiative.
As a result, it is estimated about 150 houses will be made available on a shared equity basis to those struggling to get on the property ladder.
Commenting on the announcement, Prescott said: 'This surplus hospital site- will provide more than 1,000 homes to rent, part-own or buy for a wide range of people including first time buyers and key workers like nurses and teachers.
'It's part of our programme to turn land that no longer meets the needs of today's NHS into sustainable new places to live and work.'
He added: 'Last year, I challenged developers to cut construction costs and build quality new homes for £60,000.
'People said it couldn't be done. But now it's going to happen in Basingstoke. We're using surplus public land to provide homes that people on lower incomes can afford.'
Bids are now being invited from developer teams to deliver up to 891 homes as part of the first phase of the project.