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Real Estate

Solving Portugal’s Housing Crisis

GRI Club Meeting gathered investors, developers, and municipal officials to debate Portugal’s most pressing RE issue: housing

4 MIN READ October 23, 2023

Written by Helen Richards

Portugal, a nation known for its rich history, stunning landscapes, and vibrant culture, has been increasingly attracting international investors. However, legislation introduced to battle the relentless housing crisis has posed new challenges for both local and foreign investors.

The government programme Mais Habitação - literally, More Housing - aims to do what it says on the tin - provide more housing. Key elements of the programme include lease caps, tax breaks, simplification of licensing processes, and the forced rental of unoccupied homes.

The success of the programme, however, is disputed. 

The recent GRI Club Meeting ‘Portugal's Local Legislation & International Investment’ in Lisbon saw heated discussion regarding the culprits behind the housing crisis, potential solutions to the situation, and the role of Mais Habitação and other government schemes, such as the Golden Visa, Non-Habitual Residence (NHR), Simplex, and Alojamento Rural (AL).

Simplex Not So Simple

The first culprit to be named was licensing, and more specifically the exaggerated processing times of obtaining construction licences in Portugal, bringing spirited discussion during the meeting.

One participant reported cases of investors who invested funds in December 2020 and nearly three years later are still awaiting approval, describing the system as a broken machine.

In response to these challenges, the Portuguese government has introduced the Simplex programme with the aim of expediting and simplifying licensing processes, namely through the elimination of certain authorisations, and redundant acts and procedures. The meeting did not, however, reach an agreement on whether this would in fact help the housing crisis.

A representative from the municipality of Porto provided insights into the current licensing processes, claiming that around half the projects that are delayed or paused in the approval process are in fact due to the fault of the architects and technicians, not the municipality.

Clear consensus showed that the licensing problem is concentrated in Lisbon. Porto is reported to have approved three times the number of projects than Lisbon last year. The secret, the municipality representative shared, is in organisation, transparency, and a culture of service to the community, which is witnessed within Porto municipality services.

Above all, he continued, the critical element is clear urbanistic rules. In other European countries, when land is bought, the capacity of the land has already been discussed, planned, and set. The licensing process is simply an administrative act.

Density Development

During the meeting, comparisons were made between the island of Manhattan in New York and Porto. The surface area of Manhattan is 60km² with a population of 2.5 million, while Porto covers 42km² with a population of just 210,000 - notably 100,000 less than its population in the 1980s.

Similarly, the city of Paris has a comparable surface area to Lisbon, but where Paris has more than 11 million inhabitants, Lisbon has just 500,000.

Although there are limits to the density of a city, and infrastructure must develop in parallel, it is evident that in Portugal, building within the already built city must be better explored. This is an opportunity to improve the density of Portugal’s cities, one meeting attendee suggested. This is further supported by the current status of frozen urban perimeters and the availability of existing buildings in Lisbon in need of rehabilitation.

The government’s role in this, however, is disputed. Once again, the municipal representative from Porto reported that the abundance of available public land to provide housing is a myth.

In Porto for example, 72% of land is private, and just 28% is public. Comparing the scenario to the island of Manhattan, the difference is stark - public land in Manhattan accounts for 49%, and private; 51%.

Porto’s population has fallen by around 100,000 since the 1980s. (Image: Belogorodov | Adobe Stock)

Goodbye Golden Visa

The Golden Visa program, which has been a popular avenue for non-EU investors seeking Portuguese residency, came to an end this year for real estate investment, naturally introducing new obstacles for foreign investors.

Stating the obvious - the major challenge facing Portugal is lack of housing. While some place blame directly upon the Golden Visa, others claim that ending this programme will not solve the problem. Rumoured to be used for millionaire apartments, one participant described how the scheme in fact encourages investment in various sectors of the country, meaning the end of the scheme will undoubtedly harm the Portuguese economy.

Another participant lamented that Portugal’s biggest ambassadors - namely foreign investors - are being abandoned with the end of the Golden Visa, reminding the room that there simply is not enough public money to provide housing for the level of demand that Portugal has. Private, and often foreign, investment is crucial.

The Construction Culprit

With a limited number of new properties being constructed each year, housing availability remains a pressing issue. The construction industry in Portugal faces challenges, including a lack of skilled labour, inadequate production capability, and limited innovation - the construction sector worldwide has been among the slowest to innovate.

In the year 2000, Portugal built 190,000 houses. In 2022, it was five times less, with the construction of just 22,000 houses and developers claiming they were at their limits.

It is dubious to claim that licensing processes were quicker or easier in the year 2000, so what explains the difference? 

“There is no construction industry in Portugal,” one participant declared. The country simply doesn't have production capability or manpower. Yet another culprit brought to the table was the construction framework, and “a set of first world rules in a second world market”.

What Housing Crisis?

Another participant emphasised that the housing crisis is not a one-size-fits-all problem, controversially asking “What housing crisis?”

In Portugal, 70% of people own their home. Of those, 65% don't have debts. Of those who have debts, the outstanding debt is roughly EUR 60,000, and the average mortgage payment is between EUR 300-400. It would seem that for a large percentage of the population, housing is solved.

For those that are outside of this system, of course, there is an indisputable problem, but for those that are inside, reducing housing prices devalues the assets of millions of homeowners. The problem applies predominantly to young people, those residing abroad, and immigrants - who, ironically, play a critical role in the construction industry.

Portugal’s housing crisis brought varying and feverish opinions during the GRI Club Meeting. (Image: GRI Club)

Conclusion

If it is not a licensing problem and construction is facing a structural problem which will take decades to fix, where does Portugal turn? Demand must be cut. It’s nothing new; lease caps, tax breaks, forced rental of unoccupied spaces, limits on short term rentals (Alojamento Local), incentives for developers - but each with their own set of complex obstacles.

It's essential to recognize that the problem isn't confined to housing alone. It extends to the broader challenges of urban planning, infrastructure, and available land for development.

As the country seeks to strike a balance between protecting tenant rights and fostering investment, finding innovative solutions to address housing shortages and modernise construction practices will be crucial for the nation's continued growth and prosperity. 

Evidently, there is no simple answer, and it seems it will be a challenge facing real estate players for years to come.

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