Low-carbon development is closely linked to the concept of sustainability, which focuses on both economic growth and the targeted reduction of greenhouse gas (GHG) emissions, facilitating the transition to climate neutrality. This process involves the efficient use of resources and necessitates systemic transformations across various sectors of the economy. For Latvia to achieve its climate neutrality objectives, it is essential to adhere to the principles of the bioeconomy, with a particular emphasis on the use of timber in construction. This approach combines opportunities for economic development with environmental protection, as timber is a renewable resource that contributes to carbon sequestration. The utilisation of timber in construction enables carbon storage within buildings and substitutes traditional materials such as concrete and steel, the production of which is highly energy-intensive and generates substantial CO2 emissions. Consequently, timber use also reduces indirect emissions associated with the construction sector. The objective of this study is to identify the main barriers hindering the broader application of timber construction materials in Latvia’s building sector and to propose solutions to overcome these obstacles. The research tasks include an analysis of climate neutrality and construction targets within the EU and Latvia; an examination of the current situation and influencing factors regarding Latvia’s forest resources, their harvesting, processing, use in construction, and trade balance; and the identification of critical problem areas and the delineation of possible solutions. For theoretical and situational analyses, the authors employ methods such as scientific literature review, policy content analysis, descriptive methodology, statistical data analysis, and interpretation of quantitative and qualitative data. The results are synthesised using PESTEL analysis, which serves as a continuation and elaboration of the initial SWOT analysis assessment and is visualised through graphical representation. The authors of this study participated in a national-level expert group whose members represented the Parliament of the Republic of Latvia, responsible ministries, forest managers, construction companies, wood product manufacturers, and representatives from higher education and research institutions. The following hypotheses are proposed and substantiated in this article: (1) Latvia possesses sufficient forest resources to increase the share of timber used in construction, (2) increasing the use of timber in construction would significantly contribute to both Latvia’s economic development and the achievement of climate neutrality targets, and (3) the expansion of timber use in the construction sector depends on a restructuring of national policy across multiple sectors. Suggested solutions include the improvement of regulatory frameworks for timber harvesting, processing, and utilisation in related sectors—agriculture and forestry, wood processing, and construction. The key challenges for policymakers include addressing the identified deficiencies in Latvia’s progress toward achieving its CO2 targets, introducing qualitative changes in timber harvesting conditions, and amending regulations governing the forest management cycle accordingly. For timber processing companies, it is crucial to ensure stable conditions for their commercial activity. Promoting the use of timber in construction requires a broad set of changes in safety and financial regulations and procurement requirements. Timber construction is relevant not only in the building sector but also in civil engineering, and modifications and additions to educational programmes are necessary. The promotion of timber use among the wider public is of great importance. At all stages of timber processing—from harvesting to integration in buildings—access to financial resources should be facilitated. As numerous sectors of the national economy (agriculture, forestry, wood processing, construction, logistics, etc.) are involved in timber processing, interdisciplinary research is required to address complex challenges that demand expertise from multiple fields.