During the summer in Japan, the outdoor thermal environment in residential areas is worsened by the heat discharged from air-source heat pumps (air conditioners) commonly used in residential houses. The external environment thus deteriorated makes the indoor thermal environment uncomfortable and increases the energy consumption for cooling. As a solution to this problem, this paper proposes a new district heating and cooling system for densely populated residential areas that utilizes water-source heat pumps and a large-scale thermal storage tank. The underground thermal storage tank is connected to the houses through a piping network. Heat discharged from the water-source heat pump in each residence is carried to the thermal storage tank through the piping network, thus reducing the heat exhausted to the outdoor space. It is shown that electricity consumption can be significantly reduced compared with individual systems that use airsource heat pumps and that the thermal performance of the system is influenced by the outdoor air temperature.Units: Dual