Housing association The Guinness Partnership has held a breaking ground ceremony for the development in Pilton.
The first phase of 19 social rent homes at Margaret Bondfield Close was completed in 2018 and planning consent has now been granted for the additional 20 homes.
Mr Eavis has donated the land on condition the homes will serve the local community in perpetuity and also contributed £275,000 to the scheme.
The development is supported by funding from Homes England. The contractor E G Carter & Co Ltd have commenced works on site.
Mr Eavis said: "Pilton is really important to me - it's where I was born, where I have lived man and boy, where I have brought up my family, and, of course, it has been home to the festival for more than 50 years now. With rural house prices so often out of reach for local people, this gives villagers, most of whom are working families who live around here, the opportunity to live here for the rest of their lives at a social rent. I started to build these houses 45 years ago with funding from the government and when this scheme is finished, it will bring the total number of houses available to 52. Of all the things I’ve done in my life this is the one I’m most proud of. The Guinness Partnership has really understood what I wanted to achieve and worked with us to ensure the houses fit with the style of the village."
Craig MacDonald, head of new business at Guinness, said: “We are grateful to Mr Eavis for donating the land upon which these new homes are being built. This scheme is a great example of collaborative working, and we are delighted to be able to continue to provide much needed affordable housing in this rural area.”
Mathew Vye, associate director at EG Carter, said: “These new homes will not only be built to the highest quality but also provide much needed homes for residents with strong connections to the village of Pilton."
The project will include houses, bungalows and flats and is scheduled to be completed by April next year.