The money, handed to Mayor Dan Jarvis and housing bosses at the Sheffield City Region, will aim to identify brownfield sites across the county to increase property stock over the next five years.
SCR bosses have outlined they can deliver 2,500 homes and are now in the process of drawing up potential sites.
A more detailed plan of where these homes will be is not expected until 2021.
The mayor also said the Government should go further in devolving more money and powers so regions with devolution deals in place can better bounce back from the coronavirus crisis.
A further £841,000 of funding has also been announced to help speed up the delivery of these new homes on brownfield sites in South Yorkshire and SCR will be able to bid for more money in the future.
“This is a huge boost for South Yorkshire,” Mayor Jarvis said.
“Building 2,500 affordable and high-quality homes will create jobs and economic growth for the region.”
Housing Minister Christopher Pincher MP said: “Delivering the well-designed, environmentally sustainable homes the people of the Sheffield City Region need is absolutely key to this Government’s mission of helping you to bounce back from the great challenge we’ve faced.
“This £40.3 million investment in the Sheffield City Region will deliver around 2,500 much-needed new homes, underlining our commitment to uniting and levelling up every part of the country.”