Financing greater circularity in the renovation & development of public, cooperative and social housing

A recent review of the uptake of circular building and renovation methods noted[i]: “In the last couple of years, actors in the construction industry have shown an increasing willingness to move towards circular businesses. However, many consider circular construction to be a more expensive option, which makes actors reluctant to invest in circularity”.

When we look at the situation faced by many public, cooperative and social housing providers, we see that there is pressure for them to deliver as many renovations and new developments as possible, often with limited budgets. Our recent analysis in the ‘State of Housing in Europe – 2021’ also reveals that there is a significant unmet need for social housing in Europe, which will likely be exacerbated by the COVID pandemic. Thus, adding additional costs, such as circular solutions, may be a difficult proposition for some providers.

However, the recent session during Housing Europe’s Renovation Summit – ‘Financing greater circularity in housing’ – which was run in partnership with the Horizon 2020 HOUSEFUL project on May, 11th, offers a new perspective on this issue, by looking both at the costs associated with being circular, and the possible financing streams which are open to housing providers.

The costs (and savings) of being more circular

The Summit looked at two case studies of circular housing projects to try to better assess the cost of implementing circular solutions.

This Vätterhem YEAH project is an innovative[ii] circular, sustainable housing project being developed by the Vätterhem municipal housing association, located in Jönköping (Sweden), and Yellon. It will see the development of 44 fully ‘off-grid’ public rental housing units, along with 44 similar, but ‘on-grid’, comparator homes.

When it comes to the costs of the development, the 44 ‘standard’ apartments will cost approximately €12 million to develop (€295k per unit). The 44 innovative ‘off-grid’ apartments will cost around €17 million (€386k per unit). This means that the self-sufficient units are roughly €90,000 more expensive to develop.

The Vätterhem YEAH business plan shows that the ‘standard’ apartments will retain their cost advantage during the first 10 years of the occupancy. However, by year 20, the costs have effectively equalised, and from then until the expected obsolescence of the building in year 100, we see that the YEAH building will begin to accumulate cost savings.

Meantime, the ‘Om Circle House’ project, a collaboration of Lejerbo, a Danish social housing provider, and GXN/3XN Architects, will see the development of 60 public housing units in Lisbjerg, outside Aarhus. Om Circle House is being developed in such a way that it can be ‘disassembled’, and the used elements can be recycled almost without losing value.

The project has made a conscious decision to work with Denmark’s concrete industry in the development of the project, rather than using more carbon-friendly materials such as wood. This was done to make sure that the project was not just a one-off, but that it has broader impacts on the construction sector by working to improve on the practices of the concrete sector. The other materials used in the project, upcycled materials, such as old plastic bottles are being repurposed. The housing is also being fit together in such a way that ‘parts’ can easily be removed and replaced, if needed. This means the upkeep of the building and future renovations will be less costly for Lejerbo, versus a traditional social housing development.

The two case studies unambiguously show that there are potentially significant savings to be made by social housing providers by using circular methods of building and renovation, at least over the lifetime of a building.

The Director of Dutch Laboratory for Green Transformable Buildings, Elma Durmisevic pointed out that too much of the waste we generate in Europe comes from construction and demolition, around one-third. Given the increased willingness of governments to challenge such wasteful use of our limited natural resources, it seems inevitable that the cost of disposing of building waste will increase in the future. Thus, building ‘reversibility’ into buildings and renovation at the design phase today, will future proof housing providers against potentially significant financial penalties in the future.

Elma also show cased the SuperLocal project in the Netherlands, which has successfully recycled building materials which were not originally designed to be re-used. Although, this is currently very costly, and unless innovations, increased skills and economies of scale are found, as well as improved public incentives, may remain so for some time.

Financing circularity

The session on circularity also heard from Kevin McGillycuddy, a Senior Economist at the European Investment Bank (EIB) who discussed two points of particular importance for providers of affordable housing. Firstly, he made the point that the EIB only lends for the development of social and affordable housing, with commercial ‘for-profit’ providers not considered for loans. Secondly, the EIB has a target of at least 50% of its lending being for “climate action & environmental sustainability” (CA&ES) – of course, that is not to say that the other 50% of its lending is not ‘green’, but rather that it is lending for areas which may not have an environmental element to them, for instance national security.

Combining these two ingredients – lending reserved for not-for-profit providers and the Bank’s green lending objectives – should be very encouraging for social providers in search of long-term low-interest financing for circular housing development. ‘Circular economy’ is also one of the EIB’s main pillars in terms of its work on realising the ambition of the EU Green Deal

In addition to available loans from the EIB, analysis by Housing Europe as part of the on-going HOUSEFUL project has also highlighted a number of other potential EU-level funding opportunities (see table in the download section), which are complemented by a significant number of national and local support schemes for environmentally sustainable renovations.

One of the key objectives of HOUSEFUL is for other housing providers to use the circular solutions that have been developed in the four project demo sites in their own developments and renovations. Housing Europe is leading on the identification of these so-called ‘Follower Buildings’, and we would love to hear from you if you are planning your own circular initiatives.

Find out a detailed table with EU funding opportunities in the download section below.