The four root problems of Portugal’s housing crisis

There are four root problems causing Portugal’s housing crisis says the president of the Portuguese Association of Real Estate Developers and Investors. (APPII)

In an interview with the news source ECO, Hugo Santos Ferreira points to: a great lack of offer faced with the growing demand, a crisis in getting access to housing affecting people that are not on the housing ladder (namely young people who are among those most affected), or those people who, for one reason or another, had to leave their house (bought or rent) and have to enter the market. These people cannot find a solution on the market.
The third problem of the housing crisis has to do with property price increases compared to wage increases. In other words house prices have gone up while salaries haven’t kept pace. The situation is positive for the property owners since their wealth has gone up because their property has gained value.
The last point in the root causes of the crisis is a problem of mobility. According to the OECD, Portugal is one of the countries that has the greatest mobility problem in Europe. This, says Hugo Santos Ferreira, is down to the heavy property taxes people have to pay each time they move house.
In his he is referring to IMT, Stamp Duty, and VAT at 23% which is no tax deductible for builders and developers and is paid by the real estate developers, and which in turn has to be passed on to the final buyer on the final price of the house when sold.
Hugo Santos Ferreira citing tax authority data says that from 2021 to 2022 Portugal’s housing stock only grew only 0.8% while 15% fewer properties were built so far this decade than the previous decade.
And one of the ways of increasing the supply is to turn to the vast empty building stock — private and public — and place it at the disposal of the rental market. However, this isn’t happening because around 350,000 property owners in Portugal prefer to keep their properties empty than generating income because the owners do not have the necessary confidence in the rental law and in the governments of recent years.
They would rather, he says, have their property empty without generating any income than put it up for rent because the rental law changes so frequently with every new State Budget, generally to the detriment of the owners.
Hugo Santos Ferreira says that in recent years the tenants don’t pay (the full price of a fair rent) while the owner, on the other hand has to continue to pay the AIMI and IMI property taxes, their income taxes, and all of their contributions, but don’t get a (realistic) rent.
Instead he calls for a more balanced and fairer law in which both the landlords and the tenants are protected.
The APPII president says that when rent increases of only 2% are allowed, which doesn’t keep pace with inflation (6-7%), landlords are even less disposed to put their properties up for rent with the result that there are now around 30% less houses on the rental market, when in truth landlords would have to put their rents up by 30% just to meet costs.
Instead, the answer is to provide more homes on the supply side. The current estimate is that 350,000 landlords would need to rent out their properties and if there were more properties for rent, prices would start to come down.
And as for the taxes, when a Spaniard buys a house to live in they pay 10% in tax. In Portugal they pay 23% VAT (which goes onto the final price of the house), which together with IM (up to 7%), 0.8% stamp duty, which can bring the total in taxes up to 30%. In addition, there is the AIMI which is just for plots of land for housing and properties for housing. The upshot is that in Spain they pay 10% while in Portugal owners can easily pay between 40-50% in taxes.