Housing renovation is a common concern to owners, tenants, and society at large. In addition to the high economic costs, the implementation of housing renovation usually has a long-term impact on society and the built environment. This is a theoretical paper that develops a system model for understanding sustainable housing renovation as a system phenomenon that has multiple sustainability goals, complicated dynamic processes, diverse actors, and a sophisticated institutional environment. It identifies the key challenges of a sustainable housing renovation system, namely the conflicting sustainability goals and the conflicting stakeholder interests. To address these two challenges, the paper suggests an innovative approach in which the process of innovation (linear versus organic) and the typology of innovation (product versus process and business versus social) toward sustainable housing renovation are discussed.