More than 100 NHS sites, including five in Devon and Cornwall are to be sold off in a bid to help provide housing for key workers.
Budock Hospital is earmarked for housing
Land will be sold to housing associations or developers and in some cases conditions will be in place to ensure cheaper homes are built.
Any cash raised will be put back into the NHS.
Health Secretary John Reid has identified large areas of land which is now surplus to requirements.
Sites identified for development in the South West are:
Land at St Mary's, Axminster
Land at Brown's Brook, Dawlish
Budock Hospital, Falmouth
Tiverton District Hospital, Tiverton
Belmont Hospital, Tiverton
Deputy Prime Minister John Prescott, who has overall control of housing policy, appeared at a joint news conference with Dr Reid to unveil the plans.
The boom in house prices has made it increasingly difficult for key workers - such as nurses, police and teachers - to get a foot on the property ladder in many areas of England.
Now sites which the government says are equal to the size of Hammersmith and Fulham, an area totalling 1,650 hectares, are to be made available.
Mr Prescott said: "This deal shows our determination to deliver more affordable homes where they are needed most, especially for key workers and young families."
He added: "It will unlock major brownfield sites, secure more than 15,000 new homes, and kick-
start regeneration as part of a comprehensive programme to create thriving and
sustainable communities across all regions of England."
Details to be agreed
Dr Reid said: "Much of the surplus land is in the south
of England where there is a real shortage of affordable housing for key workers such as nurses, police, and teachers.
"Staff are the public sector's greatest asset and it is vital that we work across government departments to provide them with the opportunity to live and
work where they choose and where the need to recruit is the greatest."
The two government departments have agreed to transfer the disused land but actual details of the transaction and the price involved have yet to be hammered out.
The land is currently being independently valued.
The plan to sell-off crumbling Victorian buildings would not only raise cash for the NHS but also save the service having to find large amounts in maintenance funds.
The land will have to be transferred from the Department of Health to the Office of the Deputy Prime Minister (ODPM).
It is understood that not all the homes built on the land will be earmarked for key workers but that a substantial number will be available at affordable rents or through low-cost ownership schemes.
Responding to the announcement, Tory housing spokesman John Hayes said: "We support the use of brownfield land and redundant state-owned
property for housing.
"The government should do more to make use of brownfield land in this way without resorting to concreting over our precious green fields merely to meet their arbitary housing targets."
Mr Prescott said recently that there was a need to ensure sustainability in housing as well as more moderate increases in prices.
"The most important thing is to get the numbers up, and to get houses that people can afford," he said.
"We inherited a growing crisis in housing - prices... roaring ahead faster than earnings, and people's ability to pay."