Europe scales up investment in affordable housing

The new Affordable Housing Act presented by the European Commission last week brings together a new framework of financial and technical instruments for national governments, regions and cities facing significant housing pressures. Its objective is to increase housing supply by mobilising both public and private capital.

New State Aid Rules

A key change is the new state aid framework for affordable housing. The Commission is introducing a dedicated affordable housing category that is exempt from the previous notification requirement, with no maximum compensation limit, subject to specific safeguards.

At the same time, the framework broadens the criteria that can be used to determine affordability. Public authorities may use indicators such as the rent-to-income ratio, mortgage-to-income ratio, house-price-to-income ratio, excessive housing-cost burden, or the number of years of income required to purchase a home.

In practical terms, this creates greater scope for programmes in which public funding can cover part of an investment’s “viability gap”, allowing projects that would not otherwise be financially viable at affordable rental levels to become financeable.

Cohesion Policy is already a key financing pillar. For the 2021–2027 period, a total of €10.4 billion had been earmarked, including national co-financing, primarily for the energy renovation of the housing stock and social housing.

However, the mid-term review of Cohesion Policy has opened the door further to affordable housing. As of 2 September 2026, an additional €4.7 billion had been proposed for housing, with the Commission encouraging Member States and regions to continue reallocating resources towards housing.

Of particular interest to the investment market is the new financing model for affordable housing. Its approach is not based exclusively on grants; instead, it provides for a combination of loans, guarantees, equity, quasi-equity and grants, effectively creating the basis for blended-finance structures.

€17 Billion Through InvestEU

InvestEU is moving in the same direction, supporting the construction and renovation of social and affordable housing, as well as student accommodation.

The objective is to mobilise €17 billion in investment by 2028. Eight implementing partners are already participating in the scheme, including the European Investment Bank, the European Investment Fund, the Council of Europe Development Bank and the EBRD.

EIB Housing Financing Reaches €6 Billion for 2026 Alone

The role of the EIB Group is becoming even more significant. Under its Housing Action Plan, targeted financing for affordable and sustainable housing has increased to €6 billion for 2026, bringing total housing financing to more than €25 billion so far this decade.

The EIB can provide direct financing to cities and local housing providers, co-finance national programmes, and work with development and commercial banks. Crucially, it can combine financing, guarantees, risk-sharing mechanisms and equity with European and national resources.

The model is already being implemented. In Berlin, a €500 million EIB credit line backed by InvestEU is financing approximately 3,200 affordable homes through 2029. In Portugal, a €1.5 billion EIB loan is supporting the construction and renovation of more than 50,000 social housing units, while in Italy a €100 million fund-of-funds is operating for social and affordable housing.

Europe is also providing not only capital, but mechanisms for project development and preparation.

Through JASPERS, ELENA and the InvestEU Advisory Hub, the EIB provides technical assistance to cities, regions and national governments, helping translate housing policy commitments into investment programmes that are suitable for financing.

Five major Croatian cities have already used EIB advisory support to develop local housing plans and financing models, while 13 municipalities in Latvia are planning more than 2,200 energy-efficient, affordable-rental homes.

For Greece, this could prove to be just as important as the capital itself. Municipalities facing high housing costs, vacant or underutilised buildings, and the capacity to develop a concrete project pipeline now have access to a European framework capable of combining real estate assets, public policy, technical project preparation and private financing.