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........

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