The city currently has sufficient land identified to meet projected housing targets but the council is eager to increase the rate of delivery.
The proposal was approved by the council's Cabinet earlier this month, and the full detailed business case will go before a future Cabinet for further consideration.
Councillor Peter Bilson, the City of Wolverhampton Council's Cabinet Member for City Assets, said: "Wolverhampton currently has sufficient land identified in the local plan to meet projected housing targets. However the rate of delivery remains relatively low.
"Current housing market conditions in the city and challenges regarding private sector development generally, being market led, is unlikely to lead to a substantial increase in the delivery rate without intervention by the council, both in terms of improving the supply of housing, and improving the demand and business model for market sale and rent in the city.
"There is a strong belief that a council owned housing company is both viable and offers the best outcome for the council in terms of both strategic housing and income generation."
One of the options being considered is to establish the housing company as a subsidiary of Wolverhampton Homes - an established and high performing Arm's Length Management Organisation (ALMO) for the council - rather than as a direct subsidiary of the council.
It is proposed that the council provides loan funding to the company on a commercial basis to comply with state aid requirements.
The news follows hot on the heels of the announcement last month that the remodelling of the council's Housing Revenue Account 30 year business plan will deliver an additional 400 new council homes by 2020.
- released: Tuesday 16 February, 2016