Model for Financial Instruments and Grants with Co-Financing from the EIBG and Others for Affordable Housing
Introduction
Europe is in the grip of a severe housing crisis. Across the European Union, house prices and rents have risen dramatically – between 2010 and 2023, rents increased by 24.8% and house prices by 52.2%. By 2022, nearly 40 million Europeans were spending 40% or more of their disposable income on housing, with young people and low- to middle-income families hit hardest. This decoupling of housing costs from income growth harms labour mobility, social cohesion, and economic competitiveness. It also deepens territorial disparities, forcing people to leave regions where they grew up due to inadequate or unaffordable housing.
In response, the European Commission is developing a European Affordable Housing Plan. This Commission Staff Working Document (SWD(2025) 78 final) provides a practical model for financial instruments and grants that combine Cohesion policy funds with co-financing from the European Investment Bank Group (EIBG), other International Financial Institutions (IFIs), and National Promotional Banks and Institutions (NPBIs). The goal is to unlock private and public investment, increase the supply of affordable housing, and address market failures without supporting pure market housing.
The document acknowledges that housing policy remains a Member State competence. However, the EU possesses a wide range of instruments – from the Common Provisions Regulation (CPR) to the ERDF and InvestEU – that directly or indirectly affect housing markets. This model is designed to be flexible, adapting to the heterogeneous regulatory and funding landscapes across Member States.
Core Objective: Mobilising Private Resources for Social and Affordable Housing
The primary aim of the model is to mobilise additional private and public resources for social and affordable housing investments. To do so, Cohesion policy funds can be used to:
Deploy grants in combination with financial products (loans, guarantees, quasi-equity, equity).
Incentivise reforms to strengthen national and regional housing regulatory frameworks.
Leverage EIBG, IFI, and NPBI co-financing to increase the volume of long-term, affordable funding.
A key insight is that non-repayable support (grants) remains indispensable for most housing providers. Grants help cover construction and land acquisition costs, keep rents and sale prices affordable, and bridge the gap between what tenants can pay and what developers need to build. The document outlines several types of grants: interest rate subsidies, capital grants, capital rebates, endowments for housing associations, and technical assistance grants.
Five Generic Financing Schemes (Model Instrument Options)
The document presents five distinct models, each with different delivery structures, risk-sharing mechanisms, and levels of integration between financial instruments and grants. These are designed to comply with Article 58(4) and 58(5) of the CPR.
1. Combined FI in One Operation (Guarantee or Loan FI)
Under this model, the Managing Authority (MA) sets up a single financial instrument – either a guarantee fund or a loan fund – that provides both the repayable support (loan or guarantee) and the grant component in one operation. This is possible under Article 58(5) CPR.
How it works: The MA entrusts a fund manager to provide guarantees to banks or loans directly to final recipients. Grants (e.g., capital grants or interest rate subsidies) are combined at the level of the financial instrument.
Co-financing: EIBG, IFIs, or NPBIs can provide the underlying loan funding, while Cohesion policy resources cover the grant part.
Rule: Total grant support cannot exceed the value of the investments supported by the financial product (verified at FI level, not per individual project).
Best for: Situations where non-repayable support must be tightly integrated with credit risk protection.
2. Guarantee to EIB, other IFI or NPBI, Combined with Grants in Two Operations
Here, the MA provides a guarantee to the EIBG, an IFI, or an NPBI, enabling them to lend to smaller or higher-risk financial intermediaries on more affordable terms. The financial instrument (the guarantee) and the grants are delivered in two separate operations under Article 58(4) CPR.
How it works: The MA issues a guarantee to a large institution like the EIB. That institution then lends to commercial banks or directly to final recipients. Separately, the MA runs grant calls. Final recipients are eligible for grants only if they borrow from the EIB-backed intermediary.
Benefit: This leverages EIB’s balance sheet while using Cohesion grants to ensure affordability.
Best for: Member States wanting to use EIB’s lending capacity but needing grants to keep end-user costs down.
3. FI Implemented by EIBG/IFI/NPBI, Combined with Grants in Two Operations
In this model, the financial instrument (loan or guarantee) is fully implemented by the EIBG, an IFI, or an NPBI. The MA provides separate grants to final recipients. Again, these are two operations under Article 58(4) CPR.
How it works: The EIB or a national promotional bank selects financial intermediaries (commercial banks) and provides loans or guarantees. Final recipients apply separately to the bank (for the FI) and to the MA (for the grant). The two forms of support are combined at the final recipient level.
Key point: The FI and the grant are managed under distinct rulebooks – CPR rules for grants and CPR rules for financial instruments.
Best for: Member States where the EIB or NPBI already has strong local presence and capacity.
4. EIBG/IFI/NPBI Funding Combined with Grants at Final Recipient Level
This option does not set up a formal financial instrument under the CPR. Instead, the MA provides grants to final recipients in close coordination with loans from EIBG, IFIs, or NPBIs (either directly or via commercial banks).
How it works: The MA issues grant calls with a specific clause: only final recipients who also borrow from an EIBG/IFI/NPBI-funded bank are eligible. The repayable support and the grant are combined at project level, but there is no standalone FI structure.
Best for: Simpler, lighter-touch combinations where setting up a full FI would be disproportionate.
5. Equity and Quasi-Equity Financial Instruments
Equity and quasi-equity are critical where affordable housing projects generate moderate returns (due to capped rents) that may not attract private equity. The document describes two delivery structures:
Pooled Fund: Multiple investors (including the MA via a Holding Fund) pool resources into a single fund managed by a professional fund manager. Investments are made in Special Purpose Vehicles (SPVs) or companies that build or manage affordable housing.
Co-investment Model: Investors commit resources on a project-by-project basis. A lead investor identifies an opportunity, and others join. The model can include asymmetric risk sharing (e.g., public funds taking first losses) to attract private capital.
Quasi-equity instruments (e.g., perpetual bonds, titre participatifs in France) are particularly useful for non-profit structures, cooperatives, or associations where traditional shareholding is not possible.
Detailed Financial Products
The document provides technical specifications for each type of financial product that can be offered within these models.
Loans
Senior long-term loans: Tenors up to 30 years (longer in exceptional cases). Can be unsecured to avoid encumbering borrowers’ balance sheets. Mortgages may be replaced by a guarantee from Cohesion policy funds.
Subordinated loans: Act as quasi-equity, helping developers access senior debt without diluting ownership. Can be contractually subordinated (repay after senior lenders) or structurally subordinated (provided to a holding company).
Guarantees
Guarantees are provided to financial intermediaries to reduce collateral requirements and improve lending terms.
Capped portfolio guarantee: Covers expected losses up to a pre-agreed portfolio threshold. The multiplier is calculated as 1 / Guarantee Rate × 1 / Guarantee Cap Rate. Benefits include reducing provisions for the lender. Limited capital relief except for banks using the AIRB approach.
Uncapped guarantee: Covers expected losses plus part of unexpected losses, with no portfolio cap. Usually tranched (junior, mezzanine, senior). Requires larger public commitments but provides deeper capital relief and liquidity. Could be used to create a European safe asset for affordable housing loans.
Equity and Quasi-Equity
Equity: Fund manager invests in SPVs or companies in return for ownership shares, voting rights, and profit participation. Patient capital that facilitates long-term borrowing.
Quasi-equity: Perpetual bonds, subordinated loans, or other instruments that strengthen capital basis without changing shareholding structure. Applicable to associations, cooperatives, and non-profits.
Grants to Be Combined with Financial Products/Instruments
Grants are essential to ensure affordability. The document identifies several types:
Interest Rate Subsidy (IRS): Reduces the borrowing cost for the final recipient. Can be paid directly to the FR, on their behalf to the intermediary, or upfront as a discounted lump sum.
Capital grant: Non-repayable financing covering part of investment costs or filling a viability gap. When combined in one operation (option 1), it can be paid upfront, not as reimbursement of incurred costs.
Capital rebate: Provided upon fulfilment of conditions (e.g., after construction, when performance standards are met). Takes form of early loan repayment or write-off.
Endowment: For Member States without well-developed housing association systems, endowments help establish such associations and improve capitalisation.
Technical support subsidy / Technical assistance grant: Covers feasibility studies, design, procurement advice, monitoring, and commissioning.
Grant intensity can be modulated – higher for lower-income final recipients, vulnerable areas, conservation zones, or projects targeting young households or regions facing attractiveness challenges.
Eligibility and Scope
ERDF Applicable Scope
Under the ERDF Regulation (Articles 5-7), supported measures include capital expenditure for:
Construction of new affordable housing units
Renovation of existing affordable housing units
Conversion of buildings with other uses
Equity sharing / partial ownership (if justified by market failures and public policy)
Eligible final recipients include housing associations, cities and municipal companies, regulated affordable housing providers, construction/property companies, developers, and individuals facing affordability issues.
Financial intermediaries can be national/regional promotional banks, government-backed debt funds/SPVs, and commercial banks.
State Aid Considerations
State aid must be verified at two levels:
Implementing body / fund manager: Aid can be excluded if investments are on a pari-passu basis (same terms, same time, pro-rata losses and benefits, economically significant private co-investors). However, grants (capital rebates, capital grants) generally break pari-passu.
Final recipient: Support to natural persons not exercising economic activity may not constitute State aid. If aid is present, compatibility must be assessed. The Commission is considering adapting State aid rules specifically for affordable housing (beyond traditional social housing).
EIBG’s Contemplated Eligibility Scope
The EIB may apply its own eligibility rules when participating directly or indirectly. Eligible residential accommodation includes:
Social and affordable housing (various national terms)
Student accommodation (off-campus)
Key worker or seasonal worker housing
Care homes and elderly housing
Conditions for EIB support include:
Minimum regulatory framework (national policy, local plan, or suitable governance)
Transparent allocation mechanism (income, disability, migration status, key workers)
Location avoiding urban sprawl, within approved urban plan
Compliance with EU energy efficiency rules (transposed into national law)
Target groups defined by income (e.g., housing costs ≤40% of disposable income) or social constraints.
InvestEU Member State Compartment
Member States can also provide financial products through an InvestEU Member State compartment. The EIBG, NPBIs, and IFIs receive a budgetary guarantee from InvestEU. This offers a single rulebook, existing contracts, and potential state aid exclusion if implemented via existing InvestEU products. Affordable social housing under InvestEU focuses on disadvantaged groups, severe housing deprivation, homelessness (ETHOS definition), and housing-led approaches – with non-segregated, accessible rental stock.
Advisory Support and Complementarity with Previous Models
The Commission, via the fi-compass advisory platform (run with the EIB), offers advisory support for:
Establishing adequate regulatory frameworks
Investment project preparation (feasibility studies, investment strategies)
Designing financial instruments
This document complements earlier model FIs published in 2022 for REPowerEU and the New European Bauhaus, which focused on building renovation and urban development projects that may include affordable housing as part of wider regeneration.
Key Takeaways for Practitioners
No one-size-fits-all: The five models range from fully integrated (one operation) to loosely coordinated (grants alongside EIB loans). Choose based on local market conditions, existing intermediaries, and administrative capacity.
Grants are not optional: For most affordable housing projects, grants (especially interest rate subsidies and capital grants) are necessary to keep rents and prices at affordable levels while ensuring project viability.
Co-financing is strategic: EIBG, IFI, and NPBI co-financing can be recognised as national co-financing in programmes, leveraging external resources while keeping Cohesion policy funds for grant components.
State aid is manageable: The Commission is actively reviewing State aid rules to better enable affordable housing. Meanwhile, pari-passu structures (without grants) or full pass-through of advantages can avoid or minimise aid.
Equity matters: Low returns in affordable housing require innovative equity and quasi-equity structures, including asymmetric risk sharing and co-investment models.
Eligibility is flexible but principled: Member States can use their own definitions of “affordable housing”, but must target genuine market failures and avoid supporting pure market housing.
Conclusion
This Commission Staff Working Document provides a robust, legally grounded, and operationally flexible model for financial instruments and grants with co-financing from the EIBG and others for affordable housing. It recognises that access to affordable housing is not only a social necessity but also a prerequisite for macroeconomic performance, labour mobility, territorial cohesion, and climate goals. By combining Cohesion policy grants with EIBG/IFI/NPBI lending and guarantees, Member States can scale up investment, protect vulnerable households, and begin to reverse the housing crisis while respecting State aid rules and national competences.
For Managing Authorities, housing associations, promotional banks, and developers, this document is a practical toolkit. The next steps involve national and regional adaptation, ex-ante assessments, and, where needed, advisory support from the Commission and the EIB. The forthcoming European Affordable Housing Plan will likely refine definitions and State aid exemptions, but the financial engineering outlined here is ready for implementation.
Also Read: 2017 Housing Affordability Response Team (HART) Recommendations