Tauranga councillors have voted in principle to buy the 21 Bella Vista Homes which were part of the failed subdivision at The Lakes.
The mayor and council staff informed the homeowners of the decision on Wednesday evening.
Mayor Greg Brownless said the council considered all the options but believed this was the "appropriate" way forward.
"The homeowners have, in their words, been to 'hell and back'. First with the liquidation of the developer and watching work stop on their properties, to then being evacuated and living with the uncertainty of what would happen.
"We have listened to the homeowners, who told us that purchasing the properties was their desired outcome.
"Councillors had to consider all the options, but based on the advice we received, we believe this is the appropriate way forward."
The council will now look at beginning negotiations with individual homeowners.
Homeowner Lee Konowe, reacting to the decision, said they were feeling "slightly better".
"We had an outcome that breaks down to the council has unanimously agreed to purchase the properties from the homeowners."
Konowe said: "What we don't have is a timeline, a date, a quantum formula for how we arrive at the value of these properties.
"So it probably went as far as it could tonight, but it doesn't resolve for the homeowners their ability to go out and purchase a new property to replace the old one because we don't know when and how much we'll be receiving."
He said the homeowners were certainly not at the end of the process.
"Had there been a commitment for actual market value - used as a word - plus damages, that would have been much more satisfying."
Chief executive Garry Poole said there was no time frame set for the negotiations but the council would move as quickly as possible to have the matter resolved.
The total cost to the council is close to $2 million since March 9, Poole said.
"We know that this has been a difficult situation for homeowners and residents, who have been living in temporary accommodation since March, but we hope that today's decision lifts some weight off their shoulders."
The council also formally received the independent investigation report by former High Court judge Paul Heath QC, who presented to the councillors via a video link.
Heath's report found that while the council dealt adequately with resource consent applications made in relation to the Bella Vista subdivision, he believed it failed in other areas.
The report recommends the council takes immediate steps to resolve outstanding differences between the homeowners and itself.
It says: "The benefits of early resolution far outweigh any desire to have the homeowners' claims tested in court."
Heath also recommended a further investigation once the issues with these homes are resolved, to identify "why" this happened.
The council intends to look further at this recommendation.
Councillors had the opportunity to ask questions of Heath before they went into three hours of deliberations.
The council does not know how much the cost of buying the 21 properties will be as this will be part of the negotiations.
Homeowner Tony Mann said the council's decision was the right one.
"It's a good end, hopefully now we can pick up our lives and move on.
"Once we read through that report, I think that will answer all our questions. I think the report says it all."
Another owner, Andre Stewart, said it was a "small victory".
"I think we still have a process to go through. We know the recommended method but we still need to figure out what that method, what that cost is.
"And I hope that we can negotiate in a way that benefits all parties."
Stewart said you never celebrate too early but "I think on the inside, we're jumping up and down".
Evacuated homeowner Jenny Coffey said her immediate reaction to the decision was "relief".
"That they're doing the right thing. And it's a step in the right direction. Our lawyer will negotiate the rest for us."
Mayor Brownless also acknowledged the homeowners "for their patience over the past five months".
"We want to thank the homeowners, their families, and the public who have supported them throughout this ordeal. We also acknowledge the efforts of our staff who have worked hard to get to this point."
Bella Vista Homes went into voluntary liquidation on November 30, leaving behind 30 unfinished houses and millions of dollars in outstanding debts to creditors, some in other parts of the country.
Large numbers of building subcontractors and trade suppliers were impacted.
By mid-March this year, liquidators had received total claims of $3.7m.
Following the liquidation, Tauranga City Council started to assess all the homes, including inspections by building and engineering specialists, to find out what the homes needed to be compliant with the building code.
Then early on March 9, the council was told by a geotechnical specialist that 21 properties needed to be vacated.
Tauranga City Council chief executive Garry Poole issued the warrant to evacuate the properties so emergency works could be carried out.
He said part of the reason for the urgency was the potential arrival of Cyclone Hola, but an unretained slope in the area was also at risk of failing.