Addressing this issue requires coordinated policy interventions, innovative approaches, and a clear focus on both the supply-side and demand-side factors contributing to the crisis.

In Portugal, the housing market is facing mounting pressure from multiple fronts. The influx of foreign buyers, particularly from countries like the US and Brazil, has led to rising property prices in cities such as Lisbon, making the country’s real estate market one of the most expensive in Europe. This, combined with supply-side constraints and increasing construction costs, has led to a severe affordability issue, particularly in key urban areas.

Land scarcity remains one of Portugal’s most significant challenges, with limited space available for new construction. In response, the government passed a bill in January 2024 allowing rural land to be converted for urban use. While this move aims to address the land shortage, it has sparked concerns from environmental groups, and there are fears that it could be misused for political gain or to fuel corruption. Still, there is no denying the need to free up more land for development, especially to curb speculative landholding, which has contributed to the current housing crisis.

The construction sector in Portugal is also struggling with high labor costs, a shortage of skilled workers, and outdated building practices. The sector’s reliance on traditional construction methods has made it difficult to keep up with the growing demand for affordable housing. To mitigate this, modernizing the industry through modular and prefabricated construction techniques could reduce costs and address labor shortages, helping to meet the growing demand more efficiently.

Financing remains another significant challenge in Portugal’s housing market. Despite efforts to encourage public-private partnerships (PPPs), the country lacks a stable and transparent investment environment. The absence of investment-friendly regulations has deterred private capital from entering the market, limiting the funds available for new housing projects. A more stable regulatory framework and a focus on incentivizing private investment in housing development are essential for creating a sustainable housing market.

Portugal’s rental market also requires attention. Historically, the country has favored homeownership, but the shift toward a more balanced housing market should include strengthening the rental sector. Clearer rental laws, better contract enforcement, and tax incentives for landlords could encourage more long-term rental investment. Additionally, lowering taxes on rental income would incentivize investment in the rental sector, which could increase housing availability for those unable to purchase homes.

Another challenge that Portugal faces is regulatory inefficiency. Licensing delays of up to three years in certain municipalities hinder the timely execution of housing projects, further exacerbating the supply shortage. Streamlining regulatory processes and ensuring more efficient public administration will be crucial in overcoming this barrier and ensuring that housing projects are completed on time.

Ultimately, solving the housing crisis in Portugal will require a multi-faceted approach that combines innovative construction methods, a focus on regulatory efficiency, and investment-friendly policies. By addressing land scarcity, modernizing the construction sector, and strengthening the rental market, Portugal can begin to tackle the growing affordability issue. The government, along with private and public stakeholders, must work together to create a sustainable, affordable housing market that can meet the needs of its citizens in the years to come.

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes