The housing sector contributes 18% of the UK’s greenhouse gas emissions, which poses a challenge for meeting the 1.5 °C carbon budget. Key strategies for decarbonisation of the built environment include the retrofit of building efficiency measures, and decarbonised heat sources such as heat pumps and district heat networks (DHNs). Here, we argue that neither of these approaches in isolation is likely to be cost-optimal to meet the carbon budget; rather, a careful balance must be struck between deep retrofit and decarbonisation of heat sources. We used archetype-based housing stock models to predict the heat demand of housing districts for different retrofit scenarios. We then considered the interaction of different levels of housing retrofit with district heat network deployment. GIS was used to map heat demand and plan DHN layout; sizing and costing of the DHN were determined from annual and peak heat demand for different outcomes of retrofit scenarios. A case study was conducted for Sheffield wherein the heat network was supplied by an energy-from-waste facility. We present results illustrating the implications of building retrofit for the techno-economics of the DHN, including net present cost, levelized cost of heat and carbon emissions. The preliminary results indicate that deep retrofit and electrification are preferable to the DHN in both environmental and cost terms; however, more fidelity must be added to the model to interrogate this conclusion. The cost-optimal strategy for meeting the carbon budget likely requires targeted retrofit at different levels for different building archetypes.