Housing package fails to slow house price increases

Despite the government’s 30 measures to tackle Portugal’s affordable housing crisis, they have failed to slow inflation in Portugal’s housing market.

Increasing housing supply and easing access to direct financial and tax incentives became the cornerstone housing policy of the current Democratic Alliance (AD) government when it presented its strategy ‘Construir Portugal’ (Build Portugal) in May 2024.

But two years on, the policy has been unable to put the brakes on the continued increase in house prices which had gone up 18% in the third quarter of 2025 in like-for-like terms.

The average price per square metre nationally was €3,000 rising to €4,500 in Lisbon and continues to be a bone of contention among locals living in the city.

Repeatedly hitting new records, real estate inflation has been a combination of a lack of new build and available properties with prices continuing to increase because of constant demand from tourism, immigration, digital nomads and the Golden Visa programme.

Added to this is a lack of affordable houses on the Portuguese market, particularly in the most sought after cities and towns such as Lisbon, Cascais, Oeiras, Porto and Funchal.

To offset the problem of lack of supply,, the government has been building 25,000 new homes financed by the Recovery and Resilience Programme, as well as making some publicly owned buildings no longer being used available for rennovation to create new homes at affordable rents.

Another government measure was a revision to the Land Law (Lei dos Solos) which allows rural tracts of land to be used for sustainable housing for rent at affordable prices.

Even more radical has been the government’s policy to help young people and the middle classes to buy their first properties.

This includes property transfer/purchase tax exemptions (IMT) and stamp duty for young people up to 35, for properties worth up to €316,000.

Young people also get a 100% public guarantee on bank mortgages to encourage the banks to provide lending.

The measure, considered innovative at a European level, was criticised by opposition parties in the Portuguese parliament, suggesting it would artificially distort the market, cause inflation and benefit high-income segments.

Regarding foreign investment, the Government advocated for an adjustment and ‘cooling measures’ in the market which, on the one hand, penalises non-residents, but, on the other hand, facilitates their investment for affordable rental income.

Therefore, it increased the IMT (Municipal Property Transfer Tax), at a fixed rate of 7.5% for non-residents to try to curb speculative demand, but those who become tax residents within two years are exempt or reimbursed, provided they use the property for rental income at moderate prices.

In the area of ​​rental housing, the government of Luís Montenegro took several measures that broke with those of the previous socialist government: it revoked the forced rental of vacant houses; reduced VAT on construction to 6%; supported landlords with a reduction in the IRS tax rate on property income to 10% (instead of the previous 25%) for those renting at moderate prices.

It also set the ‘moderate rent’ at a value of up to €2,300 per month, a value that surprised many as it was considerably higher than what the middle class can usually afford. Furthermore, it implemented an exemption from the additional IMI tax for properties intended for affordable/moderate rental. And it revoked restrictions on the licensing of local accommodation.

This March, the Government also announced measures to facilitate the placement on the market of properties in the process of undivided inheritance, which will cover approximately €700,000 properties, according to the government’s calculations.

Yet, despite all these measures and some cooling in the market, property prices in Portugal saw significant increases in early 2026, with reports indicating a rise of 13.1% in January 2026 compared to the previous year, with national prices reaching a record average of €3,047 per square meter, driven by limited supply and strong demand. Other reports suggest even higher year-on-year increases of up to 17.7% to 20% in some data sets – the second largest increase in
the European Union.

Source: Expresso/Dinheiro Vivo; Credits: Louis Droege for Unsplash.