Given the urgent need to decarbonize the built environment, the building sector must move beyond conventional practices to effectively mitigate its substantial carbon footprint. It is projected that planetary boundaries will be exceeded if current construction practices continue, highlighting the urgent need to transition toward low-impact construction methods. This study investigates the potential of bio-based materials and circular strategies to reduce the environmental impact of a terraced single-family dwelling in Flanders, Belgium. First, multiple circular and bio-based assemblies for building envelope elements (walls, floor, and roofs) are developed with input from Flemish construction stakeholders through co-creation workshops. Subsequently, a life cycle assessment (LCA) is conducted to evaluate the reduction potential in environmental impact when these assemblies are applied in the dwelling instead of conventional assemblies. This reduction potential is assessed through a stepwise optimisation approach at the building level, prioritising the elements with the greatest environmental impact. In the first step, the reduction potential of bio-based materials is quantified by substituting conventional assemblies with bio-based alternatives. The second step focuses on circular strategies (e.g., reuse of materials and demountable assemblies). In the last step, both approaches are combined and integrated into the dwelling to evaluate their combined effectiveness in reducing the environmental impact. The study identifies the slab on grade as the building element with the highest environmental impact when applying conventional materials. By redesigning this element using both bio-based materials (cork insulation) and circular strategies (reused ceramic tiles and sea shells), a 13% reduction in the dwelling’s environmental impact is achieved compared to conventional design. Implementing the stepwise approach to additional elements further increases the reduction potential. These findings underscore the viability of adapted circular and bio-based strategies, offering a tangible pathway toward low-impact residential construction in Belgium.