The Center of Excellence in Energy Efficiency, which brings together researchers from several Estonian universities, said in a recent review that another 12 million square meters of floor space will need to be renovated over the next 30 years. That is equivalent to roughly 9,500 to 10,000 apartment buildings.

According to the research team, the current subsidy-based system has proven effective, but it is also expensive and creates dependency.

"The question is whether it is possible to continue providing broad-based subsidies or whether support should instead be targeted to those who genuinely need it, while developing market-based alternatives for areas with higher property values in order to create a sustainable financing model and a predictable environment for market participants," the review said.

The researchers also found that many apartment associations in areas with high property values are unwilling to renovate their buildings on their own, even though they have the borrowing capacity to do so.

"As a result, renovation has become dependent on subsidies, which hampers the broader adoption of market-driven renovation," the review said.

The experts also noted that while a significant share of buildings has been renovated in some cities, comprehensive renovations have been undertaken only to a minimal extent in others, resulting in highly uneven development of both the building stock and the urban living environment.

With the cost of renovating an apartment building now reaching about €50,000 per apartment, many families cannot afford it. At the same time, buildings continue to age and inevitably require upgrades and renovation. Residents also increasingly expect broader improvements to their living environment.

"To some extent, renovation activity also correlates with property values, meaning that more projects have been completed in areas where property values are higher," the review said.

Protected heritage buildings have also proven challenging. Renovation costs for these buildings average around €1,500 per square meter, roughly twice the cost of renovating a prefabricated panel apartment building. The strict restrictions intended to protect architecturally significant buildings often end up contributing to their deterioration.

"Maintaining renovation subsidies at their current level places a significant burden on the state budget, particularly alongside rising defense spending. Apartment associations, contractors and prefabricated house manufacturers need a clear housing policy to create a predictable market environment," the experts concluded.

They also identified the exhaustion of current European Union (EU) funding as a concern. With no new funding rounds scheduled for 2027 and 2028, the sector could face a slowdown as market participants seek opportunities elsewhere and may not return immediately.

Progress hinges on state budget deliberations

According to the Ministry of Climate, funding for those two years has not yet been determined because plans for the use of EU funding are still being finalized, said Kaspar Alev, the ministry's head of residential investment.

Whether renovation support can begin as early as next year using proceeds from the European Union's Emissions Trading System (ETS) will be decided during state budget negotiations. However, the budget will not be adopted until the end of the year, while renovation subsidies have generally been distributed during the first few months of the year. Estonia's parliamentary elections are also scheduled for March next year.

Alev said the ministry also plans to revise support for culturally valuable buildings. While these buildings have traditionally been eligible for higher subsidy rates to help offset their greater renovation costs, the ministry now wants to encourage renovations to be carried out in stages.

According to Alev, this would mean providing subsidies for individual projects, such as replacing a roof or improving its insulation, upgrading a heating system or insulating the building.

Alev said that although the ministry has taken regional distribution into account when awarding subsidies over the past two years, the figures confirm that disparities remain.

"At the same time, it must be taken into account that about 40 percent of Estonia's housing is located in Tallinn. About 40 percent of buildings in Mustamäe have been renovated, compared with just 11 percent in Lasnamäe. The biggest concern is Ida-Viru County's slow pace of renovation, where only 5 percent of buildings have been renovated so far," he said.

The Center of Excellence in Energy Efficiency is a seven-year project (2024–2030) aimed at helping reverse the growing trend in energy consumption and supporting a breakthrough in the comprehensive renovation of residential buildings.

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