The city’s efforts to improve the living situation of low-income families continued Wednesday with the groundbreaking for the second phase of a mixed-income housing project in Fair Haven.

Quinnipiac Terrace, which once consisted of run-down two-story homes constructed in the 1940s, is being rebuilt as a mixed-income housing development. Officials hope the development — with buildings that match the architecture and state of the surrounding community — will help integrate low-income families into the Fair Haven community, a predominately Latino neighborhood east of downtown.

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The project will replace 256 older public housing units with 160 new units, 29 market rate rental units and 37 affordable housing units. Phase One, which has already been completed, created 81 of those public housing units, and Phase Two will construct the remaining 79.

The project was initiated in 2003 with a $20 million grant from HOPE VI Revitalization, a program funded by the U.S. Department of Housing and Urban Development. New Haven and 27 other cities were selected from a pool of 58 applicants to receive funding for revitalization plans. The HOPE VI program was created in 1992 after a report by the National Commission on Severely Distressed Public housing found that 86,000 public housing units in the United States needed revitalization.

Before the start of the redevelopment of Quinnipiac Terrace, the run-down houses were not a healthy addition to the surrounding area, Ward 14 Alderwoman Erin Sturgis-Pascale said.

“I rarely walked through the old Terrace housing because I was afraid,” Sturgis-Pascale said. “But now I would happily walk through the new housing, and it will be a pleasure to meet the new tenants … [and to] meet each other’s children.”

Sturgis-Pascale said the project’s promotion of mixed-income integration is the most effective way to promote stability with communities. She said projects that put only low-income families together often fail, while projects that include a diversity of socioeconomic groups are generally more stable.

The affordable housing units will provide incentive for many low-income families to consider home ownership, which promotes stability within communities, said Steven Beck, deputy for administrative services at the Livable City Initiative. Beck said the only negative effect of the redevelopment might be a rise in the real estate prices in the surrounding neighborhood due to the new construction. But he said the benefits created by the construction far outweigh the negative impact on the market.

Mayoral spokesman Derek Slap said there is a great significance in projects like this for the people of New Haven.

“The Q-Terrace project marks an incredible transformation for the neighborhood,” Slap said. “Once consisting of vacant and boarded-up houses, the area is now host to hundreds of new homes with mixed income families.”

Ward 5 Alderman Jorge Perez said the city — which hosts more than 10 percent of all the affordable housing statewide — could be doing more to accommodate low-income families, but that the problem lies in the low availability of housing in the region.

“The region isn’t doing enough,” Perez said. “There isn’t enough affordable housing [in surrounding towns], and the way they often resolve this is putting them in a police car to New Haven.”

A new community center and an expanded park will be part of the project.