Portugal’s housing crisis – why it’s more about land than rich foreigners

 In House prices, Housing, More Housing Package, News, Personality

Portugal’s current urban housing crisis is not the first in its history but it is unique in that it has hit the middle class for the first time. But is it simply caused by speculation from Golden Visas and Local Accommodation tourism lets? The Mayor of Oeiras, Isaltino Morais explained why the problem is far more complex to the International Club of Portugal.

Text: Chris Graeme

Portugal has a chronic housing shortage for the middle classes which has lasted for a decade.

The reasons behind this are legion and include wages that have not kept pace with high house inflation and soaring interest rates, lack of affordable land in sought after municipalities such as Lisbon, Porto, Oeiras, Cascais, Sintra and parts of the Algarve, the sky-high costs of building materials which have risen by as much as 80% in just three years, and the simple fact that Portuguese average middle class incomes are just too low compared to the cost of new homes.

Another block to new-build housing is closely related to the above mentioned reasons. Private, profit-driven developers generally don’t respond to the demand for housing for lower-income households and this goes for practically anywhere you care to mention in Europe and the United States, not just Portugal.

It’s not because Portuguese or overseas developers in Portugal don’t want to, it’s because they can’t build them and make a profit. The rents and house prices that many households can afford to pay are too low to cover the costs of developing and operating newly constructed housing. Some households’ incomes are too low to cover even the costs of maintaining and insuring existing housing.

Then there is the question of parcels of building land in Lisbon, Porto and other desirable markets where space is at a premium and land is relatively scarce. This drives up the price and therefore makes luxury developments the only viable option for the developers to make buying and building on them worthwhile.

Of course, there has been much finger pointing by the socialist and far-left parties in Portugal claiming that the influx of wealthy French, American and other nationalities has snapped up available housing in metropolitan areas and driven up house prices fuelled by speculation. To this has been added a chorus of complaints levied at property investors who have bought up entire blocks of city-centre apartments to convert into guest accommodation for tourists; the so-called Local Accommodation wave which the current Government this year decided, along with Golden Visas, was not good for the housing market after all.

These housing problems were deftly discussed in some detail and with flair and imagination at the International Club of Portugal last week by one of Portugal’s most colourful, controversial and popular mayors, Isaltino Morais who has been the mayor of Oeiras – Portugal’s third wealthiest borough — for longer than anyone can care to remember and like the late Queen, just keeps going on and on and on…

The mayor, who has arguably courted more controversy in Portugal than Boris Johnson in the UK, has an amazingly detailed grip on the subject and should do since he has lifted around 20,000 needy low income families out of housing poverty and is hailed in Oeiras as a modern-day Robin Hood who has, rightly or wrongly, enlisted the help and wealth of fat cat locals and companies to do so.

First, he debunks the theory that rich overseas relocaters are greedily gobbling up all the housing by pointing out that wealthy Americans, Brazilians, Chinese and French are not buying two-bedroom homes in large apartment blocks on the outskirts of Oeiras. They are buying luxury properties such as town houses and villas which would be quite beyond the reach of the lower middle classes anyway.

Then he deconstructed brick-by-brick another one of the government’s ‘More Housing’ raft of policies aimed to ease, if not solve, Lisbon and Porto’s affordable housing shortage — coercive rental.

“Some of the measures have been positive, such as the rent subsidies that will benefit low-income families whereby the €200, €300 or €400 subsides are important. As to coercive rental — a measure which gives municipal councils the powers to rent out properties owned by non-resident Portuguese or foreigners which have stood empty for two years or more (after warnings) — will not, in my view, work for a very simple reason: the government has set a maximum ceiling for rents payable. This means that the rental subsidies (paid to needy families) have been set for one-four bedroom properties. The rent subsidies cannot exceed a ceiling which is around €700 per month, and most of the houses, like for example a 2-4 bedroom house in Cascais, Oeiras and Lisbon fall outside (meaning much higher rents) this ceiling and so cannot be rented coercively. This measure is part of a raft of measures that will have no effect whatsoever”, said Isaltino Morais.

Isaltino Morais admits that in the few discussions he has been involved in on national TV about Portugal’s housing problem and the government’s More Housing policy he has been “rather in the minority” regarding his opinions, although “increasingly less so” including government figures who have given their ear to his opinions.

Housing policies — 1930s to 1980s

Isaltino Morais says that Portugal, rather like the UK, has never been really successful in terms of affordable housing. During the New State (Estado Novo – 1933-1974) the dictatorship took a concern to provide housing. Many new neighbourhoods, some of them of a high quality, were built (Lisbon’s Avenidas Novas, Benfica, Chelas and Alvalade are good examples) which had been built for poor families but tended to end up in the hands of State employees and bureaucrats.

“The truth is that the Estado Novo only woke up to the housing problem in Portugal after the floods in 1967 and with the 1974 Revolution there was an extraordinary explosion of population (partly because of the hundreds of thousands of returnees and immigrants from the African colonies after the end of Portugal’s colonial wars) on the outskirts of Lisbon and Porto”.

This resulted in residents associations springing up all over Portugal’s large metropolitan centres, many associated with the shanty towns (“Tin neighbourhoods’) and illegally built neighbourhoods.

In fact there were at this time over 40,000 families living in these shanties in the Lisbon Metropolitan Area alone.

By the 1970s the idea arose to develop housing programmes to solve the problem of these makeshift neighbourhoods spearheaded by mostly left-wing politicians (read far left revolutionary and communist parties) which began to design often low-quality ‘squeeze-em-in’ tower block building projects which to this day can be seen insulting the eyes of those travelling on the Sintra line.

“There was also the utopia of the 25th April Revolution to rehouse middle class families with houses with ground floors and front yards.”

By 1977 cooperative housing associations began to form but “there was no real room for real housing cooperatives in Portugal in today’s sense. It meant that Socialist central and local governments began expropriating private land in Greater Lisbon at the behest of these associations during the revolutionary period until democratic laws and property rights were established from 1982.

One good thing resulted from these forced expropriations. Suddenly municipal councils had a land glut – Isaltino recalls these times because he was first elected mayor of Oeiras in 1985.

“We had lots of plots of land fall into our arms, they hadn’t been purchased, the housing cooperatives wanted to build and we, along with Lisbon, advanced”.

At that time Oeiras had 5,000 families living in shanties and a lot of plots of land which the council paid for and built 5,000 homes in the municipality which the council ceded to the cooperatives at cost.

The period between 1974 and 1989 and the PSD governments of Cavaco Silva saw some progress with some public and affordable housing part funded by EU regional levelling up funds and loans to local councils.

1993 – Cavaco Silva and Mário Soares

During the legislative elections of 1993 when the PSD party led by Ánibal Cavaco Silva had trumpeted the success of democracy by providing affordable housing for the Portuguese, Mário Soares, the then PS leader, slammed the government ’s housing record by showing the many “miserable” shanty towns that still existed in Lisbon and other metropolitan areas.

“The Portuguese were confronted with this situation of misery with TV reports of thousands of families living in poverty in shanties that encircled the Lisbon Metropolitan area and were shocked by the situation”, he said.

Prime Minister Cavaco Silva developed a programme (Special Revitalisation Programme) which solved the problem for around 30,000 families. However, it didn’t completely resolve the problem. For example, Amadora, around 12 kilometres from Lisbon, still has around 6,000 shanty homes, Almada on the South Bank has around 5,000 but the problem in Greater Lisbon has been largely solved.

At the same time, between 1984 and 1989 there was a wholesale failure of small developers (Called ‘Brave Ducks’ (Pato Bravos), many of whom had come to the Lisbon region from Tomar in the 1950s, 1960s and 1970s to build four-storey apartment blocks) and civil construction companies in Portugal.

The vacuum left was filled by Real Estate funds and larger property developers. From 1995 a period began in which many of Portugal’s housing problems for the middle classes began to be resolved.

This was possible because cheaper and more accessible mortgages were made available by the banks, resulting in hundreds of thousands of new houses being built that met the needs of the lower middle and middle classes at relatively affordable prices.

A new housing crisis in the making

The post-Covid period saw Portugal’s latest housing crisis take centre stage with soaring interest rates, the cost of living crisis and tighter mortgage conditions from the banksL although the problem had begun with the Great Recession and Sovereign Debt Crisis from 2008 onwards.

In 2008 there was a glut of housing with the sub-prime speculation crisis as a result. Between 2008-2011 thousands of homes were launched onto the market in Portugal which went unsold, mainly because credit for banks dried up and with it the mortgages they offered.

Once again this led to a new wave of successive bankruptcies of developers, construction companies and estate agencies.

This resulted in vacant properties and a housing market that did not recover the value they were selling at before 2008, a situation that lasted until at least 2014, and was one of he reasons why the then PSD-CDS-PP coalition government introduced the Golden Visa programme and other incentives such as lower taxes on urban requalification to kick-start the country’s sluggish housing market. It worked, with wholesale urban regeneration of city centres and an inflow of overseas investors to snap up the properties that were cheaper than elsewhere in Europe.

The lates crisis, partly provoked by housing speculation and inflation for the very first time affected the middle classes. Before this house prices were compatible with salaries. Now they weren’t, hence the reason why the government felt it necessary in February to launch a new housing package policy in an attempt to alleviate the problem.

“I was astonished at the number of developers, investors and political commentators who were worried about the coercive rental measure that formed part of this ‘More Housing’ package. How extraordinary that they took it seriously!”

“This housing package isn’t viable in any way. There won’t be any affordable rents at all. Take for example the luxury apartments in Estoril that rich Angolans buy. If one stands empty, the government is not going to fill it with poor needy tenants under the coercive rental regulation because the rents costs €10-15,000 per month and the government is not going to offer a subsidy of €9,000 to €10,000,” said the Lisbon mayor.

“The majority of apartments would have to be rented outside the law and so none of these apartments at these prices are going to be forcibly rented”.

However, the Oeiras mayor did say that families who can only pay €400 per month that would receive subsidies of up to €700 was positive, as was the greater flexibly and acceleration of planning processes at municipal councils which would also help.

As for Golden Visas, Isaltino Morais said the measure to end them for property investment was pointless as only wealthy foreigners bought them to buy houses that were beyond the reach of the poor in any case. “It’s not going to be the Golden Visas that will increase the prices of affordable homes.”

“If you listen to all these detractors and commentators you get the feeling that Local Accommodation, Golden Visas and planning permission is fuelling the rising price of houses in Portugal and as though housing was all set at one price when the essential reason of high construction and land costs is ignored,” he said.

The increasing price of land

Isaltino Morais points out that any developer or council will tell you that one of the main stumbling blocks for developers being prepared to build affordable housing is the lack of building land, and as a result, the high cost of land because of its scarcity.

In this he was referring to the Soils Law (Lei do Solos) which was reexamined under the PSD Government of Pedro Passos Coelho which forced most municipal councils in Portugal to revise their Municipal Development Plans or PDMs which reduced land in urban areas that could be built on (presumably to retain green field sites) and which drastically reduced available land which could be used for construction.

Isaltino Morais makes it clear that the Soil Law has radically restricted available urban land for building purposes while stifling municipal urban planning to deal with the lack of supply of affordable housing in Portugal.

The government, recognising the problem, wants to reclassify green field sites to urban sites which run contagious to increase the size and availability of land for building but only on public land.

The current legislation regarding the classification of land and territorial planning will eliminate what constitutes land for construction from December 31, 2023, which will only exacerbate the lack of land and drive up prices even more.

Isaltino Morais says that the Soils Law should have sufficient flexibility to attract both public and private investment which is in the national or municipal interest without having to be bogged down by complicated territorial planning red tape which takes a long time and is often incompatible with the business timelines of developers, the goals of municipal councils in providing affordable housing, and at the end of the day even the State’s.

Oeiras – second most important economy in Portugal

Moving away from Portugal’s complicated housing crisis, Oeiras, said the mayor, was the “second most important economy in Portugal thanks to the sheer number of large multinationals who have offices in its three business parks – Taguspark, Lagoas Park, Quinta da Fonte, Arquiparque and Campus Agrotech. “Naturally this leaves people astounded as they often don’t know that”. “Portugal is a small country and it is something we’re proud of in Oeiras.”

As the second economy in Portugal, Oeiras has a turnover of €26Bn per annum worth 10% of the country’s GDP. When compared to certain sectors, Portugal’s national tourism industry, for example, generates less with €18Bn per annum, it is no mean feat and even outstrips the overall GDP of Portugal’s second city Porto with €18Bn and Cascais, the upmarket playground of the rich and famous (€6Bn).