Sustainability can be the catalyst to solve Europe’s middle-income housing crisis

Investors can address Europe’s housing shortage while delivering community-led housing aligned with evolving tenant expectations. Hilke Nijmeijer reports.

Solving Europe’s housing crisis for middle-income earners requires investment strategies that balance affordability, sustainability and long-term asset performance.

Energy efficiency lowers tenant costs and enhances asset valuations. Affordability supports long-term demand, ensuring stable rental income. Community engagement fosters tenant retention and reduces turnover costs.

These three pillars, when executed well, reinforce one another, creating a positive feedback loop that aligns social impact with financial returns.

By embedding these sustainability principles into a well-executed residential investment strategy, investors can contribute to solving Europe’s housing shortage while delivering community-led housing aligned with evolving tenant expectations.

Through case study examples across CBRE Investment Management’s (IM’s)European mid-market residential portfolio, we will demonstrate how these three sustainability considerations contribute
to positive outcomes for people, places and the planet.

1. Energy Efficiency

Energy efficiency is a key driver of both affordability and asset resilience. Rising energy costs, evolving tenant expectations and regulatory mandates have made sustainability a core driver of investment performance.

Buildings that successfully integrate energy-efficient upgrades gain a competitive edge in attracting tenants and institutional capital, while assets that fail to do so are at higher risk of obsolescence.

Case study: María Pacheco

CBRE IM’s María Pacheco asset in Madrid illustrates the mutual benefits of energy efficiency investments for tenants, landlords and the environment.

The 82-unit residential asset, originally built as social housing in 2009, had an Energy Performance Certificate (EPC) rating of Band E at acquisition in December 2022, making it costly for tenants to maintain comfortable living conditions.

To improve sustainability, €2.3 million was invested in upgrades, including solar thermal panels, a new insulated facade and rooftop photovoltaic systems to generate on-site renewable electricity.

These upgrades lowered tenant energy costs, increased disposable income and improved affordability, resulting in an EPC upgrade from E to C and a BREEAM In-Use certification of Very Good.

For landlords, the improvements align assets with decarbonisation goals, enhance rental values at lease rotation and reduce maintenance costs, strengthening long-term performance.

By prioritising energy efficiency, investors capture demand from cost-conscious renters while improving tenant satisfaction and safeguarding against both regulatory and obsolescence risks.

2. Affordability

Affordability in the residential sector is often associated with low-income housing, but the most pronounced structural gap lies in the mid-market segment.

Government interventions have largely focused on social housing for low-income populations, leaving middle-income earners increasingly priced out of major urban locations.

This ‘forgotten middle’ – including teachers, nurses, police officers and firefighters – now struggles to secure suitable housing near their workplaces, amplifying skilled labour shortages and weakening economic resilience.

A striking example of this affordability squeeze is evident in Amsterdam, where rents have nearly doubled since 2010 and the mid-market segment faces an acute supply-demand mismatch.

As of Q3 2024, 58% of rental demand across the Netherlands is concentrated in the mid-market (€1,157-€1,500 per month), yet only 30% of available listings fall within this segment. The highest availability is in the top-priced market segment, where demand is significantly lower, highlighting a severe supply imbalance as tenants prioritise affordability (see Chart 1).

This imbalance reflects a critical affordability gap, as rental growth continues to outpace wage growth across many European cities. The cost-of-living crisis and rising interest rates have pushed homeownership out of reach for many middle-income earners, leaving them reliant on rental markets where supply is constrained at affordable price points.

Case study: Affordability through sustainability

CBRE IM’s sustainability-driven renovations at De Logger and Het Staatse, two single-family residential portfolios in the Netherlands, demonstrate how energy-efficiency retrofits enhance affordability, improve asset resilience and align with regulatory decarbonisation goals.

While De Logger takes a phased approach towards electrification, Het Staatse has fully transitioned to a gas-free operation. Both projects illustrate how targeted sustainability upgrades can lower operating costs, improve living conditions and future-proof assets against evolving environmental standards.

Across the two single-family residential investments, CBRE IM implemented deep energy retrofits to reduce fossil-fuel reliance and enhance building performance.

For De Logger (in Baarn, 85 homes, built in 1985, renovated 2023-24), CBRE IM improved insulation, installed solar panels and optimised heating systems while maintaining gas infrastructure for now, with full electrification planned by 2030.

For Het Staatse (in IJsselstein, 48 homes, built in 2005, renovated 2024), CBRE IM eliminated gas entirely, replacing gas boilers with heat pumps and integrating solar panels for energy self-sufficiency
in some homes.

Tenant energy savings significantly outweighed rent increases, according to CBRE IM’s research. At De Logger, tenants saved €97 per month on average, offsetting a €53.60 rent increase, while Het Staatse tenants saved €104 per month, more than covering a €60 rent rise.

Carbon emissions dropped by 56% at De Logger and 59% at Het Staatse, demonstrating the tangible environmental benefits of electrification and renewable-energy generation. Market value per square metre at Het Staatse increased by €343, reinforcing the financial viability of comprehensive energy retrofits.

Scalable long-term solutions

These case studies highlight two pathways to sustainability: phased electrification at De Logger and full decarbonisation at Het Staatse. Both models demonstrate how integrating energy efficiency and affordability into investment strategies creates a scalable, long-term solution for the mid-market residential sector. With European policymakers increasingly focused on mid-market housing supply, investors who integrate affordability now will be well-positioned for future policy shifts.

In the UK, CBRE IM’s commitment to social housing affordability is measured through financial metrics and tangible resident outcomes. Securing affordable housing can be challenging, particularly for larger families. By partnering with best-in-class registered providers, CBRE IM ensures rents are assessed against capped benefit allowances, making homes truly accessible to those in need.

Thomas, a recent resident, shares his experience: “We lived in a small studio – just one room, a tiny shower and an even smaller kitchen. That was all we had. Now, we’re in a two-bedroom house.

“Having the space and facilities to care for our child has been a drastic shift. As my son grows, starts crawling and eventually walking, he’ll have places to explore, including a back garden. Our home is phenomenal. Now, I can focus on doing things I actually enjoy: watching my son grow and spending time with my fiance.”

By capturing impact through residents’ voices, CBRE IM highlights the human side of the affordability challenge, reinforcing the importance of sustainable, well-managed housing solutions.

3. Community Engagement

Community engagement plays a crucial role in tenant satisfaction, retention and long-term asset performance. Residential developments that foster a sense of community experience have lower vacancy rates, reduced turnover costs and typically attain higher tenant satisfaction scores, all of which contribute to stronger net operating income.

In the Netherlands, CBRE IM piloted community-building initiatives that are showing encouraging results. Tenants in Amsterdam’s Domūs Houthaven residential building benefit from shared-use facilities such as a guest room and cooking studio designed to enhance compact dwellings, particularly for starters, expats and young professionals.

These facilities allow residents to host family or friends at a modest fee, significantly below local hotel rates, while also providing communal space for social gatherings and events.

Self-sustaining revenue model

These amenities are easily booked via a smartphone app, ensuring accessibility and streamlined management. The revenue model is self-sustaining, split equally. CBRE IM’s share is reinvested into community-building activities, and also contributes towards a deduction in the property management fee (about 10% of total costs), effectively reducing operational expenses while benefiting residents.

Early results indicate that resident-led initiatives yield stronger engagement than top-down management strategies. Whether through energy-saving programmes, waste-reduction initiatives or tenant-organised events, a sense of shared responsibility fosters higher tenant satisfaction and retention.

Following the success in Amsterdam, CBRE IM is expanding the programme in Berlin and other European markets, with further data collection underway to quantify the long-term impact on tenant retention and rent stability.

By demonstrating how shared-use facilities and reinvested community income can enhance liveability, this initiative provides a scalable model for fostering stronger tenant engagement across Europe’s mid-market residential sector.

Sustainability-driven residential investments are no longer optional – they are vital to long-term value creation. Institutional capital must integrate affordability, energy efficiency and community engagement to build resilient, future-proofed assets.

Scaling these principles across European markets will unlock long-term value, positioning sustainability as a driver of both social impact and financial returns.

Hilke Nijmeijer is portfolio manager for Europe residential strategy at CBRE Investment Management