The European Housing Affordability Plan: What Can We Expect?

With the release of the plan on December 16, we get a glimpse of the future for Europe’s embattled housing sector. But action will take time, and the special committee on housing (HOUS) must find a way to effectively channel EU-level changes into local action.

The flagship European Affordable Housing Plan (EAHP) arrived on December 16. After a year of public consultations, and many years of challenging housing market conditions in the EU, the Special Committee on the Housing Crisis in Europe (HOUS) has finally delivered a roadmap on how they will tackle affordable housing crisis.

The plan seeks to address low housing supply and building activity; growing energy poverty (i.e., the inability to pay for essential energy needs) and the rising number of homeless, which now stands at around 1 million people across the EU; and the rules and funding constraints limiting both private and public sector participation in affordable and social housing projects.

Combining efforts from various partner EU institutions sits at the core of plan. However, a unified approach to the housing crisis is difficult as housing policy is not an EU level competence, (i.e., the layer of the European Union above Member States where laws and policy etc. utilise European institutions to effect common goals) (European Parliament, 1996). Overcoming this hurdle will be a crucial test of the plan.

The aim of this article is to discuss four target areas under the housing plan, touching on some of the challenges the plan faces and what possible solutions the EAHP can bring. The first section will cover inefficiency in the EU construction sector and how the plan will help to modernise. The next section will discuss regulatory reform, focusing on what can be done at the EU level. Then, a discussion of the green economy related to housing will build on the last two sections, before the final part covers the financing of the plan. Through this analysis, we can begin to understand how the HOUS committee intends to tackle the crisis, what the challenges are, and whether this ambitious plan can deliver the action needed–and, in time.

Modernising Construction

Creating new housing supply is a priority of the EAHP. But it also represents one of its biggest challenges. Firstly, there is no generally accepted definition of what affordable (or social) housing is, making it difficult to deliver a comprehensive package of support across the EU. Secondly, slowing development activity has resulted in a large housing demand gap (between dwellings built and those still needed), estimated at 925 000 units in 2025 across the EU (EIB 2025, p. 209). Lastly, non-market housing (i.e., housing below the market rate for prices and rents), otherwise known as affordable housing, creates a financial challenge for construction companies and developers. Development activity has therefore tended to focus on more profitable prime residential buildings in recent years, constraining affordable supply further (EIB 2025, p. 206).

How will the EAHP support more affordable housing development? Modernising the construction sector is one part of the solution. Only 1 in 4 construction firms currently innovate in the EU, and almost half (45%) are not utilising advanced digital technologies (EIB and Ipsos Public Affairs, 2024). Closing this innovation gap can improve efficiency by reducing time-consuming processes, such as processing paperwork and filing for building permits, making this a target area for EU policymakers (European Investment Bank, 2025).

To spur construction sector productivity, the EAHP will help fund the digitalisation of the construction sector and support the public procurement of modern construction practices. For example, a successful building model called SOFTacademy in Estonia has adopted modern techniques to increase construction efficiency and reduce costs, utilising pre-made modular housing components (windows and insulation panels manufactured off-site) for renovating old apartment blocks that shortens renovation times and limits disruption to tenants (European Commission, 2025c). The HOUS committee also seeks to encourage the development of innovation clusters, such as business and industrial zones, that can benefit from the testing and experimentation of development techniques. This bodes well for public-private partnerships willing to take advantage of new funding facilities that align with the goals of the affordable housing plan.

Regulation, Regulation, Regulation

Innovation and digital adoption can help construction firms and encourage development. But policies around land use, zoning laws, and energy and material requirements create barriers that limit overall construction activity. The HOUS committee recognises this constraint, which is why they are working to cut regulations that make it easier for private firms to build.

One area that could benefit from reform is in land policy. Land availability and population density are primary drivers of house price growth in the EU (EIB 2025, p. 183). This makes cities a flashpoint for the affordable housing crisis: around 75% of the EU population (340 million people) live in cities where rents, house prices, and housing associated costs are typically highest (European Commission, 2025a). Meanwhile, only 3% of land in the EU is being used for residential housing, compared to 74% for agricultural and forestry purposes (refer to figure).

Adjusting the costs of re-using vacant lots, such as decommissioned industrial units, and modifying energy requirements for land development can open up opportunities for construction firms to deliver much-needed housing supply (EIB 2025, p. 183). In EU cities, changing zoning laws to increase housing density (e.g., developing more high-rise flats) can effectively utilise the limited space for development. These policies, however, require the support of local government; again, the plan meets the issue of driving change at the local level. How can the HOUS committee reduce regulatory barriers to meet the needs of the affordable housing plan?

Adapting EU construction standards can help to drive change from the EU level. For example, by changing the rules on building permits. Acquiring permits is a slow and time-consuming process. Removing the European Commission’s role in the process can speed up permit requests, streamlining the pre-development process that can save on time and construction costs (EIB 2025, p. 206).

New EU legislation must also be designed to avoid disruption to the construction sector. One such legislation is the Emissions Trading System 2 (ETS2), coming online in 2027. It aims to capture C02 emitters not currently absorbed by the existing emissions trading system, such as fuel combustion in buildings, transport and small industry. Revenues from the system will be utilised in the EU’s socio-economic and climate goals. However, the HOUS committee will need to work with the other EU institutions to ensure that new regulation, like the ETS2, does not create further regulatory burden for the housing sector.

Green, Affordable Housing

Half of the EU’s housing stock was built before 1980, with many of these units now deemed energy inefficient (containing an energy rating of D or lower) (EIB 2025, p. 185). Vulnerable groups are more likely to inhabit homes with poor energy efficiency, and spend more of their income on energy related costs (European Commission, 2025b; Keliauskaitė, 2025). This puts them at greater risk of energy poverty–the inability to afford essential energy needs–as housing costs have climbed. Almost 1 in 10 European households could not keep their homes warm enough in 2024 (Eurostat, 2025). There is a pressing need to help vulnerable and low-income groups, such as the young, elderly, migrants, and homeless.

As a pillar of the affordable housing plan, the HOUS committee is looking to directly assist to vulnerable groups across the EU (European Commission, 2025e). Renovating the EU’s aging housing stock offers a promising solution while also meeting climate-related goals; improving housing quality, energy efficiency, and reducing housing costs through decarbonising household goods (e.g., heating, cooling, and cooking).

Stimulating renovation activity has, however, proven to be a challenge. Only 1% of EU buildings were renovated between 2016 to 2020, and those renovations that reduced primary energy demand by 60%, a key marker for energy efficiency, totalled only 0.2% per year over the same period (Keliauskaitė, 2025). Strict energy requirements that increase building costs, despite lowering household bills (EIB 2025, p. 183); skilled labour shortages and building materials inflation; and a lack of incentives for property owners to reinvest in their properties are among some of the headwinds stunting renovation activity. Furthermore, It currently takes over 12 years to see a financial return on energy efficiency renovations, with longer returns seen in France, the Netherlands, Bulgaria, and Germany (EIB 2025, p. 185).

Overcoming the challenges to renovation activity will require extensive financing. Supporting costs is essential, particularly during a difficult operating period for construction companies. Moreover, the HOUS committee must find a way to reduce the time horizon on investment returns and encourage private sector activity, particularly if it is to meet its lofty renovation goals. Under its Renovation Wave initiative, the EU Commission aims to renovate 35 million buildings by 2030, with 100 districts benefitting from social and affordable housing infrastructure development (European Commission, 2025d). How will the EU fund these projects?

Financing Affordability and Social Inclusion

Improving innovation can boost construction firms’ productivity, helping to reduce costs and speed up much-needed development activity. Regulatory reform can unlock new development solutions, such as increasing land availability by reusing vacant lots or supporting densification in city areas (i.e., building more high-rise apartments). Additionally, renovating energy-inefficient housing can directly address those most at risk from the affordable housing crisis.

Supporting these solutions require financing. While there has been an uptick in funding from institutional investors into residential real estate projects recently, most of this investment has gone into prime and luxury markets  (EIB 2025, p. 206). Meanwhile, challenging operating conditions for construction firms are seeing many affordable and social housing projects being postponed or “dropped altogether” (Housing Europe, 2023).

Targeted EU financing can help to close the housing investment gap (the level of investment needed to meet demand), estimated at around €150 billion per year across the EU (European Commission, 2025c). One notable facility is the Resilience and Recovery Fund (RRF), brought in to restore economic stability in the aftermath of the Covid-19 pandemic. RRF funding has thus far delivered around 147,000 new and renovated dwellings for social housing across the EU (Koh, 2025). But as the RRF facility comes to a close in 2026, how effective has the RRF programme been? If we compare the delivery of around 147,000 new and renovated housing supply across the EU with the demand gap in a single market, Spain, we find a growing deficit of around 700,000 homes, despite efforts to combat dwindling housing affordability (de Cos, 2024).

Another facility is the InvestEU Fund, which provides investment and advisory services, that has been earmarked to “mobilise €372 billion in additional investment” into the high priority areas including affordable and social housing (Koh, 2025). Taking Spain again, the Cataluña project in 2023, where €100 million was dedicated from InvestEU to provide publicly protected social housing in the region, failed to close the supply gap of affordable housing units against soaring demand as unrest over the issue erupted in Barcelona over 2025 (Dolan, 2025).

However, there are distributional concerns related to financing via EU-level initiatives. For example, Member States with well-established affordable housing programmes disproportionately receive the greatest amount of EU support (Koh, 2025). This problem of biased distributions locks out Member States with less developed programmes; a notable few have become hot spots for the housing affordability crisis, such as Greece, Czechia, Estonia, and Bulgaria (Eurostat, 2025).

To overcome these challenges, a cornerstone of the affordable housing plan is the pan-EU investment platform, due in 2026. The aim is to provide open access to pooled funding from partner EU and financial institutions, spreading the financial risk of financing affordable and social housing projects (European Commission, 2025c). The platform will aim to crowd in private investment through flexible loan conditions, such as the long-maturity loans, grants, and interest rate subsidies that offer favourable financing terms to deliver housing supply (Koh, 2025). This will work in tandem with:

• National Regional Promotional Banks and Institutions (NPBIs) and partners €375 billion investment into housing projects by 2029;
• A €7.5 billion facility under the EU’s flagship Cohesion Policy 2021-2027 programme (the EU’s main investment policy);
• the European bank of Reconstruction and Development (EBRD) Real Estate Strategy for 2025-29; and
• the New European Bauhaus (NEB) initiative, funded via the Cohesion Policy fund, Horizon Europe (the EU’s research and innovation programme), and LIFE programme, will assist in scaling grassroots projects, such as green, sustainable EU neighbourhoods with affordable housing, with €400 million committed under the multi-annual NEB Facility funding tool for 2025-2027.

Alongside other EU initiatives, hundreds of billions of euros are being committed to the housing crisis. This provides an excellent opportunity to utilise EU funding for local social and affordable housing solutions. The question is: will this combined effort deliver?

What Can We Expect?

The points discussed in the article are not exhaustive. Notably, other key areas mentioned on December 16 include supporting the development of 3 million new skilled construction workers by 2030, action on housing speculation, and further legislation on the short-term rentals market (HOUS Committee, 2025).

The key takeaway from the release of Europe’s affordable housing plan is that it is an evolving project. Modernising the construction sector, driving policy reform at a local level, supporting the decarbonisation and renovation of existing EU housing stock, and streamlining financing into affordable and social housing projects will take time to materialise on the ground.

We can expect to learn more about the plan at the new Housing Summit and Housing Alliance events in 2026. But as housing demand continues to rise while supply and living standards fall, can the ambitious EU plan work fast enough to help those who most need it?

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