What is happening in Portugal?

The new Portuguese government has taken the first steps to implement its housing plan, prioritising younger demographics. Young people in Portugal up to the age of 35 will be able to purchase their first property with a mortgage with a state guarantee. Along with other government-designed measures like exemptions from stamp duty and municipal taxes on property transfers, the new provision aims to assist young people who find it difficult to rent or purchase affordable housing.

The new housing policy, called "Construir Portugal" (Build Portugal), was unveiled in May 2024, a month after the inauguration of the new government of the centre-right Social Democratic Party, which replaced the Socialist Party which has ruled since 2015. According to the recently sworn-in Prime Minister, Luís Montenegro, the objective of this policy is to increase the supply of housing, with a focus on young people, to compensate for the passivity of the previous Portuguese government in this area. 

The government envisioned a 30-measure plan to alleviate the housing problem by improving accessibility, boosting youth and public housing, encouraging housing supply, and rebuilding stakeholder trust. Construir Portugal is divided into six areas of action, namely: (1) Legislative simplification; (2) Encouraging housing supply; (3) Promotion of public housing; (4) Restoring confidence in renting; (5) Promoting youth housing; (6) Ensuring housing accessibility.

The measures include public guarantee for first-time homebuyers, tax reductions, and increased rental support. One significant component is a public guarantee scheme to facilitate mortgage access for young buyers. Moreover, under the new government's plans, 25,000 homes that are a part of the Recovery and Resilience Plan would be unlocked; the Soil Law, which sets the framework for land use planning, will be changed to allow for the use of rustic land for affordable, sustainable housing solutions and housing for teachers, security personnel, workers in the agricultural and industrial sectors, and tourists would be provided.

In addition to the guarantee effort, the government would provide tax breaks on home purchases for buyers under 35, subject to a specified property value level. These efforts aim to make homeownership more accessible to this demographic. The government is also working to improve rental affordability. The current Porta 65 program, which gives rental subsidies to young people, will be redesigned to remove income-based exclusions. This adjustment will broaden the program's scope, enabling more young people to afford rent. 

Finally, the government will launch an emergency housing initiative to alleviate the lack of student housing. In addition, it promises to carry out the National Higher Education Accommodation Plan, which was started by the previous administration and aims to establish 18,000 student beds by 2026.

What is in it for you?

For our readers worldwide, Building Portugal can provide an impetus for implementing similar measures in other countries facing similar housing problems. Portugal is a poster child for the severe housing crisis continuing unabated worldwide, with the real estate market becoming increasingly inaccessible, threatening to fracture the country's social fabric further. These housing challenges are caused by a combination of factors: the steep increase in real estate prices and rents, the stagnation of household income, and the tightening of financial conditions. 

Between 2012 and 2022, house prices in Lisbon soared by 120% due to low public investment levels and a lack of robust public policy. Rental prices have also risen dramatically, while income levels have stagnated, reducing the local population's purchasing power. According to the National Statistic Institute (INE), the average rent for new contracts has risen by 8.3% per year over the last five years. In parallel, over the last five years, real estate values have increased at an average yearly pace of 10%. In contrast, the Bank of Portugal's data shows that disposable income per capita has expanded at an average annual growth rate of 5.9% during the last four years. 

Thus, an apparent disparity exists between price increases and disposable income growth. Given the situation, fewer and stricter financing choices are accessible, and the emerging housing shortage has intensified. As a result, many families need help finding long-term housing alternatives, and demographic fragmentation worsens.

The housing crisis in Portugal, which primarily affects young people, is visible worldwide. According to a United Nations report, over 1.6 billion people worldwide lack sufficient housing, with experts predicting this figure will climb to 3 billion by 2030. Moreover, UN-Habitat warned that policy debates and urban planning design do not adequately address the distinctive experiences, demands, and barriers of young people aged 18 to 29 transitioning into the housing market. If the Portuguese initiative proves successful, it could inspire other countries to follow suit. Given the severity of Portugal's housing crisis, an effective Build Portugal plan could serve as a model for other governments facing similar housing problems.

What happens next?

Although the statute establishing the procedures for putting this measure into force was published on July 10th, its actual implementation is still pending regulation, which should be completed within 60 days. The initiative, however, faces two main challenges: many young people face low wages and there is a rapid rise in housing expenses. Indeed, because two out of every three young people earn less than €1,000 per month, few banks are willing to accept the risk of lending to them. Furthermore, affordable housing for persons earning such low wages is in short supply. 

Experts are not unanimous on the predicted efficacy of these interventions. Some critics claim that the targeting program does not go far enough to address the fundamental issues causing the crisis. To them, real estate price speculation and a lack of regulation aimed at the short-term rental sector require additional attention and a more comprehensive response. Yet, despite the likely need for further measures to address the root causes of the problem, the Build Portugal plan is a promising attempt to address the housing crisis, the results of which will need to be closely monitored by other governments.

The Polis Team in San Salvador