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What role for international financial institutions in the housing sector?

Rolf Wenzel, Governor of the Council of Europe Development Bank (CEB) has the story

Brussels, 30 November 2020 | Economy

“International financial institutions (IFIs), as well as public development banks in general, should contribute to the development of good-quality and affordable housing solutions because the sector is of high social relevance and cannot be left entirely to free market forces,” writes Rolf Wenzel, CEB Governor. By providing advantageous financing to housing associations and social housing providers, the IFIs can actively support the increase in housing supply, particularly for low-income and vulnerable population groups, and thus strengthen social cohesion in Europe.

On 13 November, the Council of Europe Development Bank (CEB) approved a last round of projects for 2020 and thus exceeded €6 billion in total financing mobilised during the year. 2020 has been a challenging year for our member countries and the CEB has sought to play its part. The Bank has increased its yearly lending volume by more than €2 billion, compared with 2019, in an effort to not only provide the funds urgently needed for COVID-19 health care expenditures but also to support medium and long-term social investments in sustainable infrastructure and public services, with a focus on the most vulnerable.

It is hence no coincidence that three out of the four loans approved in November support housing construction and rehabilitation, including energy efficiency measures, while the fourth looks into sustainable investments in city infrastructure across sectors. In addition to developing the social and affordable housing sector in the selected geographic areas, this round of CEB financing will help to create jobs across the value chain, reduce energy poverty, mitigate climate impact, and improve our partners’ resilience to climate change.

CEB and housing

The CEB’s engagement with integrated housing solutions is not new. When the Bank was created in 1956, in the aftermath of World War II, one of its primary aims was to help resolve Europe’s housing issues, in particular by looking into permanent solutions for refugees and displaced persons. To date, about 20% of our overall financing has targeted the provision of social and affordable housing throughout our member countries, while ongoing projects as of November 2020 exceed €3 billion.

Is this sufficient? If we look at some of the data available, which precede the COVID-19 crisis, the answer is clearly ‘no’:

  • The public investment gap in affordable housing was about €57 billion/year in 2018, according to the Publications Office of the European Union(1) and on a constantly decreasing trend.
  • The European Federation of National Organisations Working with the Homeless (FEANTSA) and the Foundation Abbé Pierre, in their Fifth Overview of Housing Exclusion in Europe (2020), estimate that 700,000 homeless people are currently sleeping rough or living in emergency or temporary accommodation across the European Union alone – a 70% increase over the past ten years.
  • According to the 2019 State of Housing in the EU report, if housing costs are taken into account, 156 million people in the EU are at the risk of poverty.
  • Recent studies estimate that energy poverty impacts more than 50 million households in the EU(2) while housing deprivation affects 21% of low-income earners(3).

What more could be done?

Housing is an important part of the CEB’s issuance programme. One example is our Social Inclusion Bond, which the CEB has been issuing since April 2017. The proceeds are used to finance social housing, education and vocational training, and job creation and preservation in micro, small and medium-sized enterprises. To date, 33% of all proceeds, or €495 million, have been allocated to housing projects. This has led to more than 10 600 housing units being built or renovated out of the Social Inclusion Bond proceeds alone.

It is important to stress here that the Bank receives no aid, subsidy or budgetary contribution from its member countries to finance its activities. The necessary resources are raised on the international capital markets in the form of borrowings. The CEB has a top credit rating and that ensures access to less expensive financing on capital markets, which we can then translate into concrete support for our members, but that relies on the strong support of our shareholders.

Our resources are hence limited. This is why the Bank focuses on supporting good quality projects that are in line with our social mandate. By that we mean:

1. Projects which are the outcome of multi-level governance collaboration, in which local authorities are as important as national bodies, and in which stakeholder consultations take place from inception.

2. Projects which have been the result of careful long-term planning, which reflect potential demographic changes, and take advantage of innovative, environmental and digital, solutions.

3. Projects that are part of an integrated, comprehensive approach to housing which entails looking into complementary social infrastructure and services that are needed to effectively address existing social inequalities, particularly in the case of the most vulnerable.

4. Projects that count on fair and transparent procurement processes to get value for money.

5. Projects which are large enough in terms of loan amounts to make our support cost effective. Often several smaller projects need to be aggregated into larger special vehicles where we can source startup funding and technical expertise.

The CEB contributes with knowledge and experience to the development of projects that it co-finances. Thanks to donor funding and through the mobilization of own resources, we can also help with technical assistance for project preparation and/or implementation. For instance, in March 2020, the Bank set up its Green Social Investment Fund (GSIF) – a facility aimed at supporting the preparation and/or implementation of projects which demonstrate a positive social impact and a contribution to climate action. The Fund is meant to incentivise our partners to step up climate mitigation and adaptation measures while also supporting and protecting vulnerable groups.

The Bank is also closely studying how the EU’s new InvestEU and Advisory Hub instruments can be used to increase lending support and crowd in private sector capital into the low-income housing segment and affordable housing with a social impact.

In brief, IFIs could do more by assessing which approaches best fit a country or a region’s needs; experimenting with innovative financial instruments; appraising and monitoring social development results; and learning from ex-post independent evaluations how different practices can be adapted to local contexts. The IFIs can also push for holistic financing along the lines of point (3) above, and/or go for social impact financing solutions.

2021 outlook or ‘Don’t let a good crisis go to waste’

The full economic and social impact of the current pandemic is yet to be ascertained. This crisis and the earlier migration wave have placed housing in the limelight, particularly from the point of view of the need to ensure adequate homes for all while reducing the sector’s environmental footprint. It has spurred concrete funding and policy initiatives, such as the recently launched Renovation Wave and the associated 100 Lighthouse Renovation Districts. The CEB has often facilitated (by providing bridge financing) and complemented EU-funding for energy efficiency renovations and we plan to continue doing that, particularly for municipalities that aim to address energy poverty, pervasive social inequalities, and/or regional disparities.

In particular, the CEB welcomes Housing Europe’s plan to renovate 4 million affordable homes by 2030 and its members’ ambition to spend €35 billion/year for the construction of affordable homes in sustainable communities. As cogently articulated by President Bent Madsen, the effort will result in a 50% decrease in energy consumption on average, a minimum of 50% cut in emissions, and up to €700/year on average in energy savings for the benefit of each resident.

The initiative is aligned with the CEB’s exclusively social mandate and we trust it could represent a good opportunity to build better and smarter housing for all. In this context, the CEB is committed to playing its part in making sure that Europe’s social cohesion is strengthened and not weakened; that the transition out of the present crisis is socially just; that vulnerable and potentially vulnerable people are part of the solution and not singled out as a problem.


(1) L. Fransen et al. Boosting Investment in Social Infrastructure in Europe. European Economy Discussion Paper 074, January 2018.

(2) Energy poverty (EC; September 2020).

(3) Eurostat (EU-Survey on Income and Living Conditions) 2018 data for EU-27.

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