[Publication] Construction and Renovation in the EU Housing Markets: Challenges and Opportunities to Ensure Affordability

The EU housing markets face multiple challenges, including an i) insufficient construction of new residential dwellings and ii) slow progress in renovating the existing, energy-inefficient building stock. More specifically, rising construction and financing costs, scarce land, labour shortages, and low productivity are constraining the supply of residential dwellings, which in turn undermines housing affordability as rental prices and house purchase prices increase. At the same time, the EU Renovation Wave Strategy is essential to cut emissions and reduce energy poverty, but high investment costs, financing barriers, and socio-demographic factors slow down its uptake.

Improving housing affordability demands a twin strategy: scaling up cost-efficient new construction and accelerating socially fair renovations. Coordinated EU and national action — grounded in best practices and social safeguards — is essential to meet housing needs, advance climate goals, and ensure the green transition benefits all households. To achieve this twin strategy, the key challenges in construction and renovation should be addressed:

i) Construction – Key challenges & policy recommendations

• Low productivity limits output and drives up construction costs. Countries such as the Netherlands and Denmark show that digitalised permitting, integrated planning, and replication of already existing designs can cut costs and boost efficiency.
• Labour shortages require sector-wide training schemes and more attractive working conditions (like prefabrication, i.e. building components, such as walls or floors, are made in a factory before being assembled on site) to attract new groups of workers.
• Land scarcity in urban areas calls for better allocation schemes that ensure the provision of affordable homes. This can be achieved through, for example, concept-based allocation, where land is allocated based on specific development requirements, such as prioritising small or simple apartments and mandating a quota of social housing units, rather than being sold to the highest bidder. Moreover, the conversion of commercial buildings into housing could be facilitated.
• Expanding the supply of building land is essential for creating affordable housing. Policymakers could also make greater use of urban densification measures, including adding additional floors to multi-family buildings and converting attics, to increase housing capacity efficiently.
• Fragmented regulations hinder an increasing output in construction; harmonising rules nationally and eventually across the EU could foster more innovation and would help the construction sector reduce costs, for example with the use of prefabrication.

ii) Renovation – Key challenges & policy recommendations

• High investment costs and stricter banking rules reduce access to credit; targeted subsidies and use of carbon pricing revenues can shield low-income households from rent or cost increases.
• Balancing the costs and benefits of renovations: Renovations aimed at achieving top-tier energy efficiency classes, such as A and B, are often associated with very high costs. In contrast, renovating buildings with very poor energy efficiency usually entails higher upfront costs, but the significantly larger energy savings generally result in a more favourable cost–benefit ratio than in the case of buildings with medium energy efficiency. Therefore, worst-performing buildings could be prioritised, as they achieve the highest energy and affordability gains.
• Skilled labour shortages, especially of heating engineers, can be addressed through targeted training and by bundling retrofitting activities. Additionally, rolling out more digital tools, such as Building Information Modelling, could both boost productivity and attract more skilled workers, especially younger professionals, to the construction and renovation sectors.
• Lack of transparency on energy performance could be addressed through harmonised EU-rules on energy performance certificates.
• Policymakers could use property transfers as trigger points for energy-efficient renovations by linking them with targeted subsidies or regulatory incentives. Regarding the inheritance of property, in the Scandinavian countries, positive results have been achieved by obliging heirs to obtain an energy assessment, which also included a potential renovation roadmap.