The population in Portugal is experiencing the worst housing crisis in decades. Even though measures have been taken, do financial experts not see them as the solution.
By: Hanna Urfjell Pedersen, Johanne Hanghøj Jørgensen and Theis Nielsen
As the Portuguese housing crisis is currently raging throughout the country, an analysis from Portugal’s Central Bank, published on October 5th this year, shows an inequality between income, house prices and rates. An inequality that’s currently at its highest peak in more than 20 years. Worst affected by this is people under 35, where the percentage who can afford to buy a home is at the same level as in 1981, a decrease of almost 50% compared to 2001 where more than two-thirds of people under 35 owned their house.
However, it isn’t just buying property that has become a problem in Portugal. Renting a house or an apartment in the bigger cities has become just as much of a problem, if not more. The situation has now reached a point, where many are struggling to get an economic surplus at the end of the month, and some are even unable to pay their bills.
10 years of changes
According to Gonçalo Antunes, Professor in Human Science at Novo University in Lisbon, the last 10 years of different changes to the housing market, can be attributed as a cause behind the current crisis. One of these changes regards the liberalization of the rental market back in 2011-2014. Portugal was in the middle of an economic crisis at the time, and in need of help from the EU bailout group, Troika. One of their demands was that the government had to liberalize the rental market, something which is now affecting rental prices negatively.
But the liberalization isn’t the only thing that has affected the market. Other outside factors have also had a huge impact.
“Another thing is tourism and short-term rentals. The concentration of short-term rentals in some areas is clearly affecting the housing market. Especially in the Lisbon municipality, and downtown in particular,” said Professor Goncalo Antunes.
Since the launch of Airbnb in 2008, the number of short-term rentals has skyrocketed in the country. Between 2010 and mid-2019, the number of short-term rentals in Lisbon rose by more than 500%. This made the capital number six on the list of cities with the most Airbnb’s pr. inhabitant. “Foreigners from Central Europe, China, Brazil and The United States come to Portugal and buy or rent housing most Portuguese people couldn’t afford. Especially people from Centrale Europe who earn more than the general Portuguese person does,” said Professor Goncalo Antunes.
The Golden visa
Back in 2009, hot on the heels of a financial crisis, the Portuguese government started the now more than 14-year-long non-residential tax regime. One of the measures introduced was the Golden Visa in October 2012. The idea was to attract foreign investors to the country by offering them tax exemptions, and by June 31st, 2023, more than €7.2 billion had been invested in the country through the Golden Visa.
In general, Portugal has been highly effective at attracting foreigners to get a residential permit. The D7 visa gives people with a passive income the right to live in the country, and only pay 15-20% tax on everything they earn besides the passive income in the first 10 years. The digital nomad visa gives foreigners working remotely the right to live in Portugal for three years and only pay around 20% in tax. A Portuguese citizen has to pay 48% in tax.
The other side of the crisis
According to Professor Goncalo Antunes, all these factors combined have put the housing market under such pressure, that the price pr. square meter has doubled within the last five years. However, in somewhat of a paradox to the housing crisis, Portugal currently has a high number of vacant houses. In Lisbon, is more than 47 000 out of 320 000 houses vacant. Half of these are available to buy or rent the other half stands unoccupied.
“In Portugal, you don’t need to use the house. You do what you want with your property. If you want to leave that property vacant, you can do that,” says Professor Goncalo Antunes.
Why so many houses remain empty is a mystery, but According to Professor Antunes, one of the reasons could originates back in 1947. From then and up until 1990, landlords were held in a tight grip, by the government. They controlled the market and froze the rent.
To this day more than 100 000 people live in properties with a lease from before 1990. They have a very low rent. For instance, they would only have to pay €50 – €100 for an apartment somewhere like downtown Lisbon.
The choice between food and rent
In 2023, an average one-bedroom rental in Lisbon costs approximately €1000 per month. In 2023 is the minimum wage €740 set to increase to €820 in 2024.
“We have two problems with the minimum wage. It’s very minimal and it’s very general. It’s a lot of people, increasing the number of people who earn the minimum wage. And it’s not working like a minimum, but almost like a general wage,” said economist at the biggest union for workers in Portugal, CGPT, Dr. Tiago Cunha.
More than 40% of the workers in Portugal earn €800 or less a month, which stands in contrast to “A lot of workers in Portugal are in a situation where they have to choose between paying for the house, paying the medicine, or putting food on the table. The situation in general and the inflation of living costs has in some situations put people in this dilemma”
The CGTP aims to change these conditions so that the workers will be able to afford the essentials. To achieve this, they have proposed many different measures for the government to implement. Some of these regards a fairer tax system and higher minimum wage.
At the moment, Portugal has a flat tax system, where everybody has to pay a flat tax, regardless of their income. CGTP proposes that people with a higher income also pay a higher tax, while people with a lower income pay a lower tax.
They also propose a 15% increase for the minimum wage.
“If you look at the index prediction for this year and if you look at the economic growth conditions, you’ll see this number [15%]. It’s absolutely a possibility, but more so, it’s absolutely necessary,” said Dr Cunha.
Measures must be taken
Regarding the housing market, Dr Cunha stresses that two specific measures must be taken—the measures that will affect the people right now, and the measures that will affect them long-term.
“We propose to freeze the increase of interest rates. They are linked to the inflation index which was very high last year and will be even higher this year. We also propose that they freeze the rent for people who rent their property and that no one can be expelled from their home because they can’t afford to pay the rent,”
Regarding long-term measures, Dr. Cunha says there will need to be structural changes within the system. To make more affordable housing they suggest a broader public rental market and a property investment market where it’s not as easy for foreigners with large amounts of capital to invest.
Mais Habitação program
Earlier this year, on October 6th, the Portuguese government presented the Mais Habitação program, also known as the “More Housing Program”. It aims to ensure affordable housing in Portugal for years to come, by introducing restrictions on short-term rentals and extra contributions from businesses capitalizing from the short-term rental market. Furthermore, it forces rental of vacant properties and sets a limit on the value of new property on the market.
Furthermore, the government also implemented a tax benefit to the people, who sell their property to the government, so they can create more affordable housing. Restrictions on the Golden Visa, which means new applicants cannot invest in property. More discount on property tax for families in need. A lower tax on rental income, so it will be more beneficial for property owners to rent it out. Tax reduction for property owners who exit the short-term rentals.
The non-residential tax regime, where foreigners pay a much lower tax than the Portuguese citizen has been set to end by the end of 2024.
Palliative measures
The day after its presentation, the “More Housing Program” was put into effect, and will remain so until the mid-2020s. However, Professor Goncalo Antunes is sceptical as to the effectiveness of the program.
“I don’t believe they will help the market [with the Mais Habitação program]. The measures are palliative. They only help right now at this moment but will not change the housing market. It will likely still increase. The government is not doing anything structural. If they really want to change the market, they should create long-term measures.”
