The housing agency is planning to redevelop its block of 16 homes at 118 Carroll St, in central Dunedin.
Kāinga Ora regional director Kerrie Young said demolition of the existing houses started in late August and would take about four weeks to complete.
"We have taken extra precautions to secure the site and ensure that materials are removed safely," Ms Young said.
"The community may see our licensed contractors wearing protective clothing and breathing masks. This is to ensure both our contractors and community are safe during the removal of materials."
The former residents have already been moved to other available Kāinga Ora accommodation, she said.
"Planning for the redevelopment of the site has continued to progress and we’re currently expecting up to 41 new warm and dry homes to be delivered," Ms Young said.
A resource consent application had been lodged and, once the plans for the site were confirmed through the consenting process, it would be in a position to share those with the community, she said.
"It’s pleasing to see we’re now at the demolition stage so we can get the site cleared and be one step closer to building new homes on the site," Ms Young said.
A letter has been sent to neighbours about the development.
"The proposed plans include around 25% of the homes meeting full universal design standards, meaning they will be accessible to people of all abilities at any stage of life," the letter said.
"This includes people who use wheelchairs or other mobility aids, people with impaired vision and people who are elderly."
Development would also include a shared outdoor space and a community room facility for use by residents of the complex as well as community groups and providers, it said.
Carparking for residents has been incorporated into the design.
A spokesman for Kāinga Ora said matters such as the cost of the project would be revealed once the plans were finalised.
The development comes at a busy time for Kāinga Ora, as it attempts to meet demand for housing in Dunedin.
The most recent Ministry for Social Development figures show there are about 415 applicants in the Dunedin City Council territorial area on the housing register and 87 on the transfer register, and Kāinga Ora plans to deliver an extra 130 homes in Dunedin and Mosgiel over the next year.
Other developments in Dunedin include a 2361sq m Stafford St site which Kāinga Ora bought earlier this year and would eventually be turned into a 20-apartment site.
Last month, Kāinga Ora confirmed an agreement to purchase 18 two-bedroom homes being built at 27 Napier St, Mornington. The project is likely to be completed in March 2024.
It also confirmed it had bought the former Hilltop Funeral Home in Middleton Rd, Corstorphine, which would be turned into a housing development.