Abstract The choice of a heat supply option in new residential areas depends on various factors including available local energy resources and the scale and density of the heat demand in the areas. Here, we study costs and primary energy use of using district heat (DH) and ground-source electric heat pump (EHP) for heating a residential area being developed. We consider different architecture layouts and exploitations of the area along with different building energy efficiency standards which give different heat demand densities and profiles for this residential area. The analysis shows that for existing fuel-based energy supply systems, using DH is more primary energy efficient than using EHP to supply heat to the new residential area. However, if the future production of marginal electricity is based on state-of-the art technologies utilizing renewable energy resources, using EHP can be more primary energy efficient than using DH. The initial investment costs are much lower for options using DH than for options using ground-source EHP for the different exploitation alternatives. Also, the marginal heat cost for suppling DH to the residential area, excluding the sunk capital costs, is significantly lower than the heat cost for supplying heat with ground-source EHPs. The potential use of local ground-source heat linked to the exploitation level of residential area and energy performance of the buildings should be further analyzed in comparison to the use of other types of heat sources such as ambient air or ventilation air.