Portugal’s Housing Squeeze Enters a Second Act: Prices Surge as Fixes Collide with Reality

LISBON — Portugal has rewritten key housing rules, announced billions for new homes and promised to tame the runaway market. Yet by early 2025, the numbers still jar: national house prices jumped 16.3% in the first quarter — the fastest annual rise in the European Union — while rents remain high despite signs of cooling at the margins.

Lisbon’s skyline tells the story of Portugal’s housing squeeze — where soaring demand, years of tourism-fuelled short-term lets, and limited public housing have driven prices up more than 16% year-on-year, leaving tenants and young workers struggling to keep pace. (Photo: Matej Simko)

The crisis did not erupt overnight. A post-debt-crisis tourism boom and the rapid spread of short-stay lodging in city cores squeezed long-term supply just as cheap money stoked demand. For years, Portugal also lured affluent foreign buyers with residency (“golden visas”) linked to real estate and a Non-Habitual Resident (NHR) tax break; both policies have since been curbed or replaced but left a long shadow in Lisbon, Porto and on the islands.

By 2024, Lisbon’s municipal assembly backed a citywide referendum to restrict tourist lets in residential buildings, with officials citing the scale of short-term rentals — roughly 8% of the capital’s housing stock — as a key pressure point. The vote set the stage for tighter local limits even as national policy shifted.

Another structural fault line is public supply. Portugal’s architects’ chamber estimates only about 2% of dwellings are public housing — far below EU norms — and argues that bureaucratic approvals commonly take longer than construction itself, often more than 18 months.

Who is bearing the brunt

Tenants on market rents are the most exposed. Eurostat’s “housing cost overburden rate” — the share of households spending at least 40% of disposable income on housing — stood at about 30% for market-rate tenants in 2024, among the highest levels in Europe. Consumer group DECO says requests for help with rent payments rose 67% year-on-year in the first quarter of 2025.

Younger workers and students have been squeezed into smaller, pricier rooms. In 2025, typical private-sector room rents hovered around €500 a month in Lisbon and €400 in Porto, according to comparative market trackers.

Mortgage-holders — especially those on variable rates, historically common in Portugal — were jolted by rising Euribor in 2023–24, prompting the state to cap early-repayment fees and offer temporary interest-rate relief. New borrowing has shifted toward mixed or fixed rates, but the pain lingers for households locked into older variable-rate contracts.

What changed — and what didn’t

Two reform waves define Portugal’s recent response.

The first, 2023’s “Mais Habitação,” ended golden-visa routes via real estate, tightened the short-term rental regime and created subsidies for rent and mortgages. But implementation was uneven and parts of the package sparked immediate pushback from landlords and the tourism sector.

The second wave arrived with the centre-right government in 2024–25. Its “Construir Portugal” playbook pledged 30 measures to boost construction, unclog planning and “restore confidence” to the rental market — from fast-track licensing and state-backed youth mortgages to tax changes. The government has also announced major build-programmes: a €4 billion plan for 59,000 homes and a separate €2 billion plan for 33,000 more by 2030.

Government reforms have sought to rein in speculation and expand housing supply, but uneven implementation and contested rollbacks reveal how fragile Portugal’s path to affordability remains. (Photo: Symeonidis Dimitri)

In October 2024, Lisbon reversed course on parts of the short-term rental crackdown: a decree-law lifted the blanket suspension of new registrations and handed rule-making to municipalities, rolling back several “Mais Habitação” provisions. Industry groups hailed the shift; housing activists warned it risked blunting gains in long-term supply.

Policymakers also tweaked yearly rent updates. After a near-freeze in 2023, the 2025 coefficient allows landlords to raise regulated annual rents by 2.16%. Separately, Statistics Portugal reported the average rent on new leases nationwide reached €8.22 per square metre in early 2025, up 7.6% year-on-year.

The government has tried to pry loose idle stock. A reclassification push aimed to move tourist lets and vacant units into long-term tenancies; by January 2025, roughly 3,500 had switched. Officials say a national property “identity card” and more transparent registries will follow. Critics call the conversion number a drop in the ocean.

Stakeholders at odds

Developers argue that Portugal needs a rapid, predictable permitting regime and land-release strategy to add mid-market supply. The Portuguese Association of Real Estate Developers and Investors (APPII) backs the “Urban Simplex” simplification and says the core fix is “more construction.”

Builders report a mixed picture: licensing for housing jumped early this year, yet firms cite persistent labour shortages and rising input costs. AICCOPN, the main construction lobby, flagged a 28% rise in licensed housing area in the first two months of 2025, even as it warned about scarce skilled workers; Statistics Portugal said construction costs on new homes were up 3.1% year-on-year in January.

Architects frame the bottleneck as institutional. The national order says approval times commonly exceed 18 months and calls for expanding public and cooperative housing to at least 5% of stock from roughly 2% today.

Short-term rental owners, organised under ALEP, fought the 2023 clampdown and lobbied for the 2024 rollback, arguing that tourist lets were scapegoated and that city-by-city rules are fairer. Tenant groups counter that neighbourhoods hollowed out by tourism need clear caps; Lisbon’s referendum initiative reflects that tension.

Consumer advocates have zeroed in on delivery gaps. DECO says thousands of eligible tenants lost rent support due to data mismatches and delays; the government has promised retroactive payments. It has also paused applications to a sub-lease programme that, by February, had placed just 62 households.

Is it working?

The picture is contradictory. On one hand, momentum is building behind supply: licences are up, state-backed youth mortgages have been expanded, and the NHR tax break has been replaced with a narrower innovation-focused regime amid broader immigration and residency reforms. On the other, price data argue the crunch persists: homes rose at a record clip into 2025; new-lease rents in Lisbon fell 3.4% year-on-year in the second quarter, but that comes off historic highs and does not yet translate into broad affordability.

Protests last autumn underscored the public mood. Marchers across several cities demanded caps, social housing and curbs on speculative demand, sceptical that long-horizon build-targets would change near-term realities. The government says its 2030 pipeline, municipal tools and faster approvals will bend the curve. For now, the data suggest a long slog: a market still tight, a social safety net patchy in places, and a reform agenda only starting to bite.