Increase in construction costs threatens affordable housing development

Construction costs, which are continuing to rise, are now the main obstacle to the development of new affordable housing in Portugal.

This is according to the latest Portuguese Investment Property Survey (PIPS), a quarterly survey conducted by Confidencial Imobiliário in partnership with APPII – the Portuguese Association of Real Estate Developers and Investors.

According to the results for the first quarter of 2026, there is almost absolute consensus among real estate developers regarding the strong impact of rising construction costs, which now top the list of obstacles to development activity, with a pressure index of 84%.

This means that for the first time since the survey began six years ago, construction costs surpass bureaucracy and constraints associated with licensing, which no longer lead the list of obstacles identified by developers, moving down to second place.

These factors currently register a pressure index of 83%, below the historical average of the indicator, which is around 90%.

The tax burden now emerges as the third main obstacle to the promotion of new housing, with a pressure index close to 70%.

This indicator has been declining since the second quarter of 2025, when it reached 84%, already reflecting positive market expectations following the government’s announcement of a reduction in the tax burden, namely through the reduction of VAT to 6%.

“The shift of bureaucracy and licensing to second place among the obstacles reflects a positive expectation regarding the effects of the revision of the Simplex Urbanístico (Urban Simplification Law), just as the reduction in the tax burden reflects the anticipation of the impacts of the announced reduction of VAT to 6%.

However, conversely, the market notes a growing worsening of the difficulties associated with construction costs. This factor ends up canceling out a significant part of the expected benefits in those other areas, keeping the overall pressure index at 59%, a value close to the historical average of 62%,” concludes Ricardo Guimarães, director of Confidencial Imobiliário.

Source: Confidencial Imobiliário, Credit: ASMIP Portugal