Higher living costs associated with improved housing conditions in Portugal

Higher living costs associated with improved housing conditions in Portugal

Portugal's housing market is experiencing a complex and challenging situation, marked by supply shortages, rising prices, and financial burdens for residents. According to the 2024 Living Conditions and Income Survey and related data, the country continues to grapple with an imbalance in the residential property market, driven by structural constraints and strong demand, particularly from tourism and foreign buyers.

While government efforts and EU-funded programs aimed to increase housing availability have been implemented, experts indicate that around 120,000 new homes are needed to meet demand, with new construction significantly below levels seen around the turn of the century. There are currently over 720,000 vacant homes in Portugal, many in good habitable condition, suggesting challenges in housing allocation and market dynamics.

The government has introduced measures to tackle the housing shortage and improve living conditions, including incentives for construction and renovation, public credit support for young people, streamlined licensing processes, tax incentives, promotion of innovative housing concepts, and encouraging long-term leasing.

However, the median bank appraisal value for residential properties reached €1,662 per square meter in 2024, reflecting a 9.27% year-on-year increase. This price growth has further eroded housing affordability and accessibility, particularly in urban areas where rent prices can be high, typically ranging from €1,000 to €1,400 for a one-bedroom apartment in city centers.

Despite these challenges, there is some progress to report. The housing overcrowding rate in Portugal decreased from 12.9% in 2023 to 11.2% in 2024, and the number of residents living in severe housing deprivation decreased from 6.0% in 2023 to 4.9%. More families in Portugal lived in thermally comfortable homes in 2024, with a reduction in the number of people living in households without the financial capacity to maintain adequate heating.

The National Statistics Institute (INE) found a worsening in the financial conditions associated with housing in Portugal, taking into account households' disposable income and expenses. This worsening affected 30.9% of the population at risk of poverty and more than a fifth of the elderly in Portugal in 2024. The median housing expense burden increased compared to the previous year, standing at 12.0%, with the Autonomous Regions of the Azores and Madeira, and the Central region, having the lowest values for the median housing expense burden in 2024. The median housing expense burden was higher than the national average in Greater Lisbon and the Algarve in 2024, at 13.4% and 12.8%, respectively.

In conclusion, while Portugal shows some recent progress in construction and policy innovation to address housing shortages, significant challenges remain in supply constraints and affordability. The government’s multifaceted responses in 2024 and beyond seek to improve housing conditions and financial accessibility, but substantial effort is still required to reach adequacy for all citizens.

1. Despite the ongoing challenges in Portugal's housing market, particularly in the Algarve region, the government's initiatives in 2024 included streamlined licensing processes and tax incentives to encourage new home construction and renovation.
2. The Algarve, known for its popular tourism and lifestyle, is seeing a surge in demand for residential properties, but the market is strained due to rising prices and financial burdens for home buyers, according to personal-finance reports.
3. The recent Living Conditions and Income Survey highlights the need for 120,000 new homes in Portugal, while also revealing a high number of vacant homes across the country, potentially impacting home-and-garden markets and demographics.

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