Portugal’s high taxes main barrier to affordable housing

High taxes in Portugal are the main reason why developers can’t build new affordable housing for the Portuguese middle classes.

This is according to Hugo Santos Ferreira, President of the Portuguese Association of Real Estate Investors and Real Estate Developers (APPII), who says Portugal has a housing crisis whereby the Portuguese are today unable to access housing which is “a constitutional right”.

There are various problems behind the housing crisis, from low salaries that make it difficult for them to afford housing given current house prices, and the cost of mortgages, as well as a market imbalance caused by a scarcity of offer, yet creating more offer would provide the solution.

The opinion comes as the Portuguese government plans to present a new package of measures for housing, with the new Minister of Housing, Miguel Pinto Luz, promising that it will not scrap all of the measures introduced by the previous PS socialist government led by António Costa.

Tax sweeteners for rentals

One measure is to persuade property owners to release houses they are not using onto the rental market in return for tax incentives, rather than coercing them to do so through forced renting.

However, the minister wholly rejects rent controls on housing while admitting that very little has been built over the pas 20 years.

Pinto Luz also believes that rent support such as those offered by the programmes Porta 65, Porta 65+ and Porta 65 Youth will provide more support for the middle class and young people.

“We have to tackle this problem from three directions” he said. “Encourage public construction, encourage municipal councils to use private housing, and recourse to cooperative entities.”

Cut taxes to 6%

Hugo Santos Ferreira has always argued that one way of making it worthwhile for developers to build more housing at affordable costs would be by slashing VAT to 6% given that it is difficult for builders to keep costs down because of the spiralling costs of energy and building materials in recent years.

At the CNN Portugal Housing Conference last week at the Portugal Property Fair (SIL), the issue was chewed over by a panel of specialists including Santos Ferreira, Paulo Caiado, the President of Portugal’s Estate Agencies and Agents Association (APEMIP), António Ramalho, the Vice-President of the AIP Foundation, and Ricardo Sousa, the CEO of one of Portugal largest chain of estate agencies, Century 21.

A boost to the entire sector

Paulo Caiado was of the opinion that cutting VAT to 6% in the sector would give a boost to the economy as a whole, and that given a property transaction was not just limited to the buying and selling of property, it would boost the entire value chain.

“The economic network involved in construction is huge and it would significantly boost our economy,” he said.

The APEMIP president added that exemptions on tax and national insurance on housing projects at subsidised prices was a “good thing” but to solve the housing emergency cutting VAT from 23% to 6% alone was not enough.

Instead, it was essential for there to be a strict supervision of housing conditions to ensure dignified housing (meaning social and low cost housing at affordable rents) in order to avoid possible market turmoil as a result.

Housing crisis – conflating two different situations

António Ramalho (AIP Foundation) said that it was a “rather general misconception” to talk about a housing crisis in Portugal when looking at the various underlying aspects to the difficulties faced by a mature housing market.

“The housing market is one of Portugal’s success stories with 75% of families living in their own homes” said Ramalho, adding “we saw the lowest ever ratio of overdue credit payments with overdue payments on rents, services and mortgages at 6.1% compared to the European average of 9.2%. This completely contradicts the argument that there is an overall crisis in the housing market”, added the former CEO of Novobanco.

Nevertheless, António Ramalho admitted that it was undeniable that increases in interest rates had brought difficulties for mortgage paying Portuguese families.

Century 21: Doing very nicely, thank-you!

Ricardo Sousa, CEO of Century 21 Portugal said that the chain of estate agents had enjoyed a 16% growth in property turnover in April while official statistics from Confidencial Imobiliário pointed to sales of over 5%.

This meant that people were buying and selling houses not out of choice, but because of changes driven within families.

“Since November 2023 we have seen a spectacular change in the rate of buying and selling in line with people’s increased day-to-day purchasing power,” he said.

“Sometimes the two situations — the one from the side of investors; the other from the side of everyday buyers — are conflated. In our sector we have to think about changes that happen and planning for the future of (Portugal) in a more structured and strategic way. It is no longer just about thinking of the country as a whole, but rather whether our cities are competitive”, stressed Ricardo Sousa.

This meant cooperation with city and town councils was essential when thinking about urban mobility and development, with well thought out and coordinated municipal development plans.

Construction – Where’s the workforce coming from? 

Pascal Gonçalves, a board member for the Libertas Group expressed concerns at the lack of labour in construction, and wondered where they would manage to find workers to build the 26,000 homes that had been earmarked in Portugal’s Recovery and Resilience package of EU grants and loans.

As to the new Simplex programme for planning permission licences, which aims to slash red tape and the time it takes for councils to evaluate an application and give developers an answer, he thought that communication ahead of time would go a long way to speeding up processes.

He reminded the delegates that 10 years ago local councils were quicker at dealing with planning applications because (of the economic crisis) there weren’t so many planning applications being delivered to councils.

However, now the situation was different, he said, since councils had been inundated with applications in recent years, and the councils simply don’t have enough hands to deal with all the applications in a timely and efficient fashion.

“Simplex was designed to overcome this problem and I think that it will help”, he concluded.