Europe is staring at a dual crisis it hasn’t managed to solve. House prices across Europe have risen 60 percent and rents 30 percent over the past 15 years, while the number of building permits has fallen 20 percent. The European Investment Bank estimates the EU currently needs 2.25 million additional housing units, roughly 50 percent more than is actually being built. And yet the buildings that do get built remain among the largest sources of greenhouse gas emissions on the continent.
Between 2010 and 2024, construction costs in the European Union rose by 56 percent, and the European Commission expects housing demand to grow by more than two million units per year.
The housing affordability crisis and the climate crisis are not two separate problems. They are one interlocked systemic failure, and Europe’s construction and real estate sector sits at the centre of both.
The challenge: three tensions, one industry
The Architecture, Engineering and Construction (AEC) sector has suffered four decades of productivity stagnation. Complex permitting regimes, fragmented governance, and an industry structure built around one-off projects have prevented it from delivering affordable, liveable, and sustainable homes at scale.
By late 2025, the supply of new housing units in the EU met only 50 percent of actual demand, compounded by soaring costs for labour and materials and a construction sector that has historically struggled with low innovation and productivity.
At the same time, buildings account for roughly 40 percent of Europe’s energy consumption and 36 percent of its CO₂ emissions.
The EU Green Deal, the Circular Economy Action Plan, and the EU taxonomy for sustainable activities are demanding deep decarbonisation – but as theWorld Economic Forum’s Reimagining Real Estate framework (2024) makes clear, technology and sustainability commitments alone are insufficient without a reconfiguration of who builds, who owns, and who governs the built environment. The WEF’s earlier Framework for the Future of Real Estate (2021) similarly warned that affordability and decarbonisation would only align if the industry fundamentally changed its business models and governance structures. Neither framework, however, mapped the concrete alternative pathways by which this transformation might actually unfold.
France is an example which shows how quickly Europe’s housing and climate goals can collide. On April 23 2026, the government announced a housing stimulus bill to accelerate construction, decentralise some decisions, and launch a third urban-renewal programme. Its most controversial proposal would allow F- and G-rated energy-inefficient homes back onto the rental market if owners commit to renovation within three years for houses and five years for apartment buildings. Under current rules, G-rated homes have been barred from new or renewed leases since 2025, with F-rated homes due to follow in 2028. The question is whether enforcement and finance will make renovation real.
Across Europe, governments are trying to expand supply without weakening climate targets. Spain has turned to industrialised construction, using EU funds to build social housing faster and cheaper, while also confronting tourist rentals and a small social-housing stock. Germany faces the opposite pressure: housing completions fell to a 13-year low in 2025, while earlier estimates put annual need at 320,000 apartments until 2030.
At EU level, the Affordable Housing Plan now links faster permitting, renovation and cost-efficient construction. Supply measures increasingly depend on whether governments can integrate affordability with decarbonisation targets.
Four plausible futures for 2040
To address this gap, we conducted a multi-year strategic foresight study with over 30 senior industry experts from across Europe, architects, developers, material suppliers, energy companies, and real estate services firms. Published in the journal Futures our study combines a horizon scan, impact-uncertainty analysis, and three rounds of expert workshops to construct four consistent scenarios for the European AEC industry by 2040.
The scenarios are not predictions. They are structured explorations of four plausible development pathways, each with a distinct logic for how decarbonisation, circularity, and housing affordability might interact under different governance arrangements.
In the first scenario, Giants rule the AEC industry, Big Tech firms and OEM-like construction companies dominate through data-driven, off-site, industrialised building. Homes become subscription services; platforms set the standards and productivity rises sharply. But affordability and tenant agency remain contested, and small firms struggle to survive.
In the second, the Circular Future: a coalition of regulators, financial institutions, and pioneering firms embeds circular principles into planning law, procurement, and finance. Buildings become documented material banks; biomaterials replace concrete; renovation dominates. Progress on carbon and resource targets is strong, but urban affordability challenges persist without deliberate policy attention to housing typologies and ownership models.
In the third, public sector leadership: governments take direct control after market mechanisms fail to deliver at scale. Binding targets, standardised typologies, and public investment programmes drive rapid decarbonisation and housing supply, but at the cost of private innovation and creative experimentation.
In the fourth, the Green energy revolution whereby the rapid decarbonisation of the electricity grid reshapes the entire housing question. Buildings become active nodes in bidirectional smart grids, and operational carbon largely disappears. But attention shifts to embodied carbon, energy poverty, and the distributional effects of a transition that benefits some households far more than others.
The call for action
What our scenario analysis makes clear is that there is no automatic alignment between building more homes, decarbonising the stock, and making housing affordable. The same headline instruments, green finance, circular procurement, digitalisation, lead to very different outcomes, depending on who orchestrates the system and which governance logic dominates. This has direct implications for policymakers, investors, and industry leaders right now.
Three no-regret priorities emerge across all four futures:
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Deep renovation of the existing building stock is non-negotiable in every pathway; the question is only who pays and who profits.
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Digital infrastructure for monitoring energy and material performance is needed regardless of which actor is in charge.
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And new skills and organisational capabilities for industrialised construction and lifecycle thinking must be built now, not after the transition has arrived.
The EU’s first Affordable Housing Plan, launched in late 2025, and the upcoming first-ever EU Housing Summit in 2026 offer a rare political window. The question is whether policymakers will use it to address the structural governance failures our scenarios reveal, or simply add more instruments to a system whose fundamental tensions remain unresolved.
The building industry has a decade and a half to get this right. The futures exist; the choices are ours.
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