Everyone wants it, but no one can make it happen. Circular construction is widely seen as the solution to make housing construction sustainable, future-proof, and less dependent on scarce raw materials. Yet, in practice, it often gets stuck at small pilots and well-intentioned plans. The reason? Financing stalls. While housing associations are under pressure to realize hundreds of thousands of new homes by 2030, challenges are piling up: rising construction costs, geopolitical disruptions in supply chains, and increasingly stringent sustainability requirements. The construction sector consumes more than half of all extracted materials, is responsible for 35% of waste, and 40% of European CO₂ emissions. The transition to circular construction, therefore requires not only new materials or innovative designs, but above all a new financial foundation. Without an adapted financing model, circular construction will never get off the ground on a large scale. The current system is based on linear principles: homes are financed, depreciated, and demolished after thirty to sixty years all at once. Circular strategies do not fit into this system. These are based on building materials and components that are reused, retain value, and are returned to the supplier—principles that are not recognised at all in the existing financing model. And what cannot be financed is not built.

The motive for writing this article arose during a conversation between Fränk de Jong (The Future BV) and Jim Opperman (Midpoint Brabant), who are both involved in the Circufin project. Within this project, which has been set up as a Living Lab, new financing models for circular housing construction are being developed and tested in practice. The conversation clearly highlighted where the bottlenecks lie and what systemic change is needed to make circular construction structurally possible. These insights form the common thread of this article.

The logic of circularity clashes with the system

Whereas the current financing model is built on known certainty and predictability in the relatively short term, circular construction requires a long-term perspective, vision, and multi-faceted thinking. Traditionally, a home is financed in a single transaction, with the real estate serving as collateral and depreciation approaching zero over thirty to sixty years. This aligns with a linear reality in which materials are permanently incorporated into a building and eventually end up as waste. Circular construction works fundamentally differently. Materials and components, such as kitchens, facades, or installations, are designed to be detachable, reused in subsequent cycles, and retain their value partially or entirely. Sometimes they even remain the property of the supplier, who offers them as a service. Such structures are difficult to fit into the current financing system, in which factors such as residual value, ownership shifts, and multiple use must be taken into account, but which actually make risk assessment more complex and less predictable. The consequence: circular construction projects are more difficult to fund within regular financing, even when they are cheaper, more sustainable, and more future-proof in the long term. As long as financiers cling to linear assumptions, circular construction remains limited to exceptions. A systemic change is necessary, starting with a new way of thinking about value, risk, and ownership.

Why Circular Construction Is Barely Scaling Up

A frequently heard objection is that circular construction is ‘too expensive’. This impression arises primarily from the higher initial investment, often 14 to 21 per cent more than traditional construction. But that is only part of the story. Over their entire lifespan, circular homes actually yield financial benefits: lower maintenance and replacement costs, less waste, and the preservation of residual value. Yet these benefits are ignored in the current financing model, which is structured around one-off investments, fixed depreciation, and collateral value. Circular concepts, such as kitchens, bathrooms, installations, and even facade elements and electrical switches supplied as a service, do not fit into this framework. Because ownership remains with the supplier, these components cannot be counted as collateral. Furthermore, there is a lack of a methodology to properly integrate residual value into real estate valuation. For financiers, this leads to uncertainty regarding cash flows and risks. The consequence: higher interest rates, stricter conditions, and organisations scaling back their circular ambitions to traditional choices. The substantive will is there, but the system works against it.

A new financing model: multi-cycle and differentiatedTo make circular construction structurally possible, a fundamentally different financing model is needed. The Circufin project aims to demonstrate how this can be done: not with a single, uniform loan for the entire building, but with a differentiated approach in which each building component is assessed and financed separately. A home consists of components with varying lifespans and risk profiles. Land retains its value, the structural framework lasts for decades, while installations and finishing components age more quickly. Yet, all these elements are currently still financed as if they form a single unit, and future waste or processing risks are ignored. Circufin breaks with this approach. By linking financing to the lifespan and risks of individual components, room is created for customisation. Robust parts can be financed traditionally; for short-cycle or high-risk components, there is room for new forms such as leasing or product-as-a-service. Crucial is the inclusion of residual value. Instead of depreciating to zero, the focus is on reusable value and take-back agreements with suppliers. This requires clear ownership structures and a different understanding of value among financiers. The Circufin model helps make this shift concrete.

The supply chain must change along with it

The circular transition is not a solo project. Housing corporations, architects, builders, suppliers, and financiers must collaborate to make circular construction feasible. A shared starting point is essential. An important tool for aligning circularity and financing is the Program of Requirements (PvE). This document sets out what is expected of a construction project, not only technically, but also financially and legally. Examples include detachability, material selection, residual value, ownership, and take-back guarantees. The PvE helps parties make clear agreements in advance regarding value, ownership, and responsibilities. In this way, it becomes a key instrument for making circular construction financially feasible as well. In addition, asset management must also change. No longer focusing on depreciation to zero, but on value preservation over multiple life cycles. New tools are needed to monitor ownership, maintenance, residual value, and financing integrally. Only then will circularity become realistic not only technically, but also financially.

Field trial: 20 circularly financed homes in Living Lab

Agreements and models are valuable, but they only convince when they work in practice. That is why twenty circularly financed social rental homes are being realised within the Circufin project, not as a non-binding pilot, but as a full-fledged demonstration of a new system. In this Living Lab, all elements come together: circular construction concepts, multi-cycle financing structures, an adapted Program of Requirements, and a circular asset management system. This demonstrates that circular construction and financing are possible, provided the preconditions are properly established. A learning network of more than sixty parties is involved: builders, architects, financiers, policymakers, and suppliers. In this way, the Living Lab becomes not only a testing ground but also a catalyst for broader application. The results form a blueprint for other projects.

The business case is already there; now the system

Circular construction is still too often viewed as costly and complex, while the economic substantiation is actually becoming increasingly strong. According to TNO, scaling up circular strategies in the Southern Netherlands can generate up to €3 billion in additional economic value annually. This added value lies in residual value preservation, lower failure costs, and new revenue models within the supply chain. At the same time, the linear approach is becoming increasingly risky. Traditionally built homes lose policy value more quickly, which complicates future financing. This is especially true now that sustainability criteria are carrying more weight in valuations and investments. Circular construction, on the other hand, offers opportunities for value preservation and new cash flows. If residual value is explicitly included in design and financing, this yields not only environmental gains but also financial benefits. The business case is convincing; now the financing must follow.

It is time for a financial system change.

What is not financed is not built. Financing is therefore not a prerequisite, but the foundation of circular construction. As long as the system remains based on linear models, circular ambitions will get stuck in experiments, and well-intentioned circular innovations will disappear into the linear tradition. And we will continue building homes that will soon be obsolete. The challenge is not technological: the materials and designs already exist. The real bottleneck lies in the system that determines how value, risk, and ownership are assessed. The circular transition requires a different way of calculating, assessing, and collaborating. Projects like Circufin show that things can be done differently. With new financing models, field trials, and supply chain collaboration. Now it is up to clients, policymakers, and financiers to scale up this approach and anchor it structurally. The call is clear: dare to invest in the model of the future. Not because it is easy, but because it is necessary. But because the homes we build today determine the system in which we live tomorrow.