In Central and Eastern Europe, owning your home is the norm, and it has become a climate trap. In several countries where homeownership rates are high, thermal renovation represents a significant cost compared to the disposable income of many households. The European financing that supported this work runs out at the end of 2026. After that date, the Social Climate Fund, scheduled from 2026 to 2032, can finance part of renovations and clean heating, but does not rebuild a capacity equivalent to the RRF.

The Essentials

  • In Central and Eastern Europe, homeownership rates exceed 80%, which increases the importance of financing intended for individual homeowners in any building decarbonization strategy.
  • A deep renovation costs between €19,000 and €45,000 per home according to Bruegel’s assumptions for a 70 m² German apartment and a 130 m² German house—a very high amount relative to median incomes in Central and Eastern Europe.
  • The European recovery fund (RRF) mobilized €81 billion for renovation across Europe; it ends at the end of 2026, but partial financing for vulnerable households exists via the Social Climate Fund from 2026 to 2032.
  • The annual financing deficit for building renovation in Europe is estimated at €134 billion, a gap that the private market does not spontaneously fill.
  • When the owner cannot pay and the State no longer finances, the question of who bears the cost remains without a clear institutional answer.

Owning Without Being Able to Renovate

Romania has a homeownership rate of 96%. Slovakia, 92%. Hungary, 91%. These figures make Central and Eastern Europe the region of the developed world where individual property ownership is most widespread. It is a legacy of the massive privatizations of the 1990s, when State-owned housing was sold to its occupants for symbolic sums.

The result is a housing map radically different from that of Western Europe. In Germany or the Netherlands, one-third to one-half of households are renters. In Prague, Warsaw, or Bucharest, the tenant is the exception. This structure long seemed advantageous: families anchored in place, little exposed to volatile rental markets. Today, it deeply complicates the climate transition.

Decarbonizing a residential building managed by a social housing provider or institutional investor means negotiating with a single counterparty, capable of bearing debt, spreading investment, and amortizing over twenty years. Decarbonizing a house or apartment whose owner has a modest income means asking that owner to finance alone work representing a significant share of their annual income.

The Cost of Deep Renovation

The figures published by Bruegel in 2026 make it possible to frame the effort. A deep thermal renovation, envelope insulation, heating system replacement, ventilation, costs according to Bruegel €19,000 for a 70 m² German apartment and €45,000 for a 130 m² German house, amounts that vary depending on the initial state of the building and the level of performance targeted. The difference between the two boundaries depends mainly on the age of the building stock: buildings constructed during the Soviet era, often in prefabricated panels, require the heaviest interventions.

These amounts are not anomalies. The International Energy Agency (IEA) places deep renovation costs in similar orders of magnitude across the continent. In countries where disposable incomes are lower, the financial weight of renovations can be higher, but this comparison must be based on comparable national costs and incomes. A Romanian or Bulgarian owner with a median income would be strongly constrained by financing a renovation at a cost of €30,000 relative to their disposable income.

The problem is not reduced to individual solvency. It also touches the value of the property. Homes in the lowest energy classes often suffer a price discount, the extent of which varies by national and local markets. European regulation pushes in this direction. In Central Europe, a depreciation can occur as environmental standards align with those of the rest of the Union.

The owner is then caught in a double constraint: generally, he cannot decide alone on renovations concerning common areas, and his property risks seeing its value affected if he does not do so.

The RRF, a Closing Window

Since 2021, the European recovery and resilience fund, the RRF, also known as the Recovery and Resilience Facility, has injected €81 billion into building renovation across the Union. European financing was an important lever for launching or expanding renovation programs in several Central and Eastern European countries. It provided grants and loans that could finance public investments and aid for private investments through national schemes.

Poland, Hungary, and the Czech Republic developed renovation support schemes based on these funds. The Polish program “Czyste Powietrze” (Clean Air), launched in 2018 and strengthened with RRF funds, aimed to subsidize the replacement of coal heating systems and the insulation of millions of individual houses. Hundreds of thousands of cases were processed. But the pace remained insufficient relative to the scale of the stock to be renovated.

At the end of 2026, RRF disbursements stop. No identical renewal of the RRF is scheduled, although the Social Climate Fund and structural funds from 2028 to 2034 can co-finance certain renovations. The annual financing deficit for building renovation in Europe is estimated at €134 billion, according to Bruegel analyses. European structural funds from the new budget period (2028-2034) could partially take over, but their allocation to renovation is not guaranteed, and the final contribution will depend on the budget adopted and programming decisions.

This timeline creates a budgetary cliff. Programs that were working, trained craftspeople, developing supply chains risk experiencing interruptions. Households that had anticipated aid will no longer be able to access it. Municipalities that had structured local service windows will lose their primary source of financing.

Who Pays When No One Can Pay

The question of financing thermal renovation is first and foremost a question of institutional design. It can receive several answers, none of which is technically impossible, but each presumes sharp political choices.

The first option is guaranteed lending at subsidized rates. Several European countries have developed instruments of this type: the public bank advances the funds, the State guarantees the default risk, the owner repays over a long period. Kreditanstalt für Wiederaufbau (KfW), Germany’s public development bank, has financed millions of renovations according to this model since the 2000s. The problem in Central Europe is twofold: first, these countries have public banks that are less capitalized; second, the most modest households, often those living in the most energy-intensive homes, remain excluded even from reduced-rate loans if their income is too low to support any additional monthly payment.

The second option is third-party financing, or financing through energy savings. An energy services company finances the work, recovers its investment from the savings realized on the bill, and the owner initially pays nothing. This model works for homes with very high initial consumption, because the margins for savings are sufficient to make the investment profitable. It is more difficult to deploy on buildings with intermediate needs.

The third option, more radical, is mandatory pooling at the level of condominiums or neighborhoods. Rather than treating housing by housing, you treat block by block, with collective decision-making and pooled financing. This approach has been tested in Vilnius, Riga, and Estonia, where governments imposed renovation plans for entire districts with massive public support. The results are encouraging: unit costs fall, homes that are difficult to treat individually enter collective renovation. But the scale remains modest, and the model presumes administrative coordination that not all States equally master.

A link to affordable housing policies is worth noting here. The concentration of wealth within the richest households creates an asymmetry that market instruments alone do not resolve: those who have the means to renovate do not necessarily live in the most degraded homes, and vice versa.

The Baltic Experience as a Benchmark

Estonia, Latvia, and Lithuania addressed this problem earlier than their neighbors, partly because their Soviet prefabricated panel building stock, the “khrushchyovkas,” was particularly energy-intensive. These three countries developed large-scale renovation models in the 2000s and 2010s, combining high public subsidies, State-guaranteed bank loans, and technical support for condominiums.

In Estonia, the KredEx program subsidized up to 40% of the cost of deep renovations of residential buildings, with guaranteed loans for the remainder. Tens of thousands of homes were renovated over two decades. Energy bills significantly decreased for households whose homes were renovated. The renovated stock displays substantial performance gains, and CO₂ emissions related to residential heating declined measurably.

This model has a high budgetary cost in the short term. Estonia accepted bearing it because the benefits—reduced dependence on Russian gas, improved thermal comfort, property value enhancement—were judged sufficiently important. After Russia’s invasion of Ukraine in 2022, this calculation proved correct: the Baltic countries had already reduced their exposure to fossil gas well before the issue became urgent for the rest of Europe.

The essential lesson is that large-scale building renovation requires substantial, permanent, and predictable public financing over a multi-year horizon, as Baltic programs demonstrated. Programs that produced measurable results are characterized by stable and predictable multi-year financing.

Energy-Intensive Homes in a Warming Climate

The climate dimension of this issue has two sides. The first is decarbonization: renovate buildings to reduce greenhouse gas emissions related to building energy, which represents approximately 36% of EU energy-related greenhouse gas emissions according to the European Commission. The second, less discussed but equally urgent, is adaptation: preparing homes for hotter summers and more intense climate events.

In Central Europe, heat waves are already more frequent and longer than thirty years ago. A poorly insulated home loses heat in winter, which is the problem that renovation addresses as a priority. But that same home, in summer, absorbs and retains external heat. Inhabitants of poorly renovated Soviet apartments, in prefabricated concrete with little useful thermal mass, experience high interior temperatures during heat waves. Elderly people, often homeowners, often with fixed incomes, are the most exposed.

SMRs and new low-carbon energy sources can decarbonize electricity production, but they do not cool apartments if the building is not treated.

A well-designed deep renovation addresses both problems simultaneously. Good insulation reduces heating needs in winter and limits overheating in summer. A high-performance ventilation system evacuates heat at night. This double benefit, reduction in emissions and adaptation to heat, changes the economic calculation of renovation: the gains no longer come only from fuel savings in winter, but also from the value of summer thermal comfort that will become scarce without intervention.

If this reasoning is correct, it suggests that the cost of non-renovation can increase over time. An owner who does not renovate can face rising energy bills, risks of property depreciation, and increased exposure to thermal extremes. These costs are diffuse, gradual, and borne by individuals ill-equipped to anticipate them. The challenge for public policy is to make this liability visible before it becomes irreversible.

The financing model that would make it possible to untangle this situation should combine several elements: a public guarantee that makes credit accessible to households with median incomes, a lump-sum subsidy for owners below an income threshold, and technical support that prevents households from giving up faced with administrative complexity. This is precisely what the Baltic programs implemented, and what the RRF partially made it possible to finance elsewhere. The open question is which European instrument will take over after 2026, and whether Central European Member States will have the fiscal capacity and political will to co-finance these programs with their own resources.

Sources

  1. Bruegel / Economic Research Institute, A solution to Europe’s housing affordability crisis must include building decarbonisation (2026): https://www.bruegel.org/analysis/solution-europes-housing-affordability-crisis-must-include-building-decarbonisation
  2. International Energy Agency (IEA), Energy Efficiency 2024, data on residential building renovation costs in Europe
  3. European Commission, allocation data for the Recovery and Resilience Fund (RRF) by Member State, 2024
  4. Eurostat, housing ownership rates by country, long series