The proposal to pave the way for 16 new homes was approved at a Cabinet Resources meeting last night.
The council's development team is currently assessing suitable sites not previously identified for housing development that meet the government criteria.
The land will then be cleared before being sold onto developers to build the homes.
Councillor Peter Bilson, Cabinet Member for City Assets, said: "I am delighted we have been able to access this funding as a boost to our housing plans.
"We have a clear target of 13,400 new homes being built in Wolverhampton between 2006 and 2026 and the HCA value highly the work we are doing in this field."
Starter Homes will be offered at a 20% discount on open market value to young first time buyers.
Councillor Bilson added: "This adds to our stock and improves our housing offer. It also gives young people in Wolverhampton the opportunity to get on the property ladder."
- released: Wednesday 20 January, 2016