The item titled "How to finance affordable and sustainable housing" was published by the European Investment Bank (EIB) and authored by Peter Koh. It addresses the challenges of financing affordable housing in Europe, highlighting the economic hurdles that prevent private developers from building homes that are both affordable and sustainable.
Context of the Housing Crisis
The primary issue stems from the fact that constructing decent, affordable housing is often not profitable enough for private developers. As construction costs have surged by up to 48% from 2010 to 2023 and land prices have also increased, developers tend to focus on higher-end markets where profits are more substantial. This has resulted in a significant market gap for "non-market" housing, which requires public support to be viable. Gunnar Muent, a senior advisor at the EIB, emphasizes that without public backing, these affordable housing projects may become unprofitable.
EU Initiatives and Action Plan
In response to the housing crisis, the EIB launched the Action Plan for Affordable and Sustainable Housing in June 2025. This plan aims to enhance annual financing for affordable housing by 40% in 2025, increasing from an average of €3 billion per year over the last five years. The goal is to support the construction or renovation of over 1.3 million housing units in the following five years. Significant loans have already been approved, including a €60 million loan to build energy-efficient, affordable apartments in Prague.
Financial Toolbox for Local Solutions
Recognizing that housing issues are localized, the EIB is collaborating with the European Commission to create a model financial instrument for affordable housing. This instrument will help national and regional authorities channel public funds into housing while encouraging private investment. The flexible funding options will allow for combinations of loans and grants, which can help mitigate risks and make projects more attractive to investors.
Policy and Advisory Support
While financial support is crucial, the EIB underscores the importance of effective policy frameworks and local expertise. The EIB's advisory services aim to assist countries in developing policies for affordable housing, drawing on successful practices from nations like France and Austria. Collaborative agreements, such as those with Croatian cities to develop local guidelines, are part of these efforts.
Urgent Actions and Future Prospects
The political momentum for addressing the housing crisis is evident, with the European Commission appointing a dedicated commissioner for housing. The focus is on creating a European Affordable Housing Plan, which includes urgent actions such as regulating short-term rentals and boosting construction. The establishment of a "one-stop-shop" by the EIB aims to simplify access to resources for housing projects, providing a centralized point of contact for stakeholders.
EU Funding and Support
The EU's cohesion policy plays a vital role in supporting affordable housing, with €7.5 billion allocated for housing initiatives in the 2021-2027 period. The InvestEU Fund, backed by a €26.2 billion EU guarantee, is also expected to mobilize substantial investments in affordable housing. This comprehensive approach reflects the EU's commitment to tackling the housing crisis and providing sustainable, affordable solutions across its member states.