Due to the climatic conditions in central-southern Chile, there are high heating energy consumption and PM2.5 emissions. Among the alternatives to mitigate it, the Chilean government has implemented subsidies to improve the housings envelope and to replace firewood stoves by pellet stoves and air-to-air heat pumps. Accordingly, for evaluating the effectivity of above-mentioned initiatives, this study proposes to identify the optimal solutions that minimize the energy demand, the environmental impacts, and the global costs, for social housing using different insulation materials and heating systems in four Chilean cities located in central-southern Chile. Results reveal pellet stoves with lower environmental impacts but higher global costs, while heat pumps offer an intermediate solution that can be enhanced with a greener electricity grid, but the global costs are still too high. Firewood stoves could be optimal solution depending on optimization weighting factors. The study emphasizes prioritizing housing envelope improvements in energy policies, followed by heating system enhancements. Although replacing firewood poses challenges due to costs, it is crucial for Chile’s 2050 decarbonization goal. This research provides valuable insights into the complexities and potential solutions for transitioning away from firewood in Chilean social housing.