The Cost of the Coast — Can Portugal’s Praised Economic Model Survive A Housing Crisis?
Portugal’s model recovery has been praised as a blueprint for other countries but skyrocketing rents raise questions as the government is trying to address unwanted consequences
The attention was immense. Within little more than one month, the period earmarked for public consultation, Portugal’s government had to wade through 2,700 comment submissions about its landmark legislative package called simply More Housing (Mais Habitação).
On 30 March the Portuguese finally had certainty on the controversial set of measures, a joint project of Prime Minister António Costa, Housing Minister Marina Gonçalves, and Finance Minister Fernando Medina to combat the shortage of affordable housing. Mr Costa announced that the government would be moving ahead with the explosive proposals, notwithstanding “several changes” that had been made.
This means Portugal will force landlords to rent empty flats to the state, to sublet them to locals at reduced rates. Portugal will also end its golden visa scheme and suspend new licences for new AirBNBs. The measures still need to clear a few legislative hurdles, but the prospects are good given that the ruling Socialist Party holds an absolute majority.
The government is hard-pressed for making progress on the matter but faces an uneasy dilemma: the housing shortage is partially owed to policies that continue to fuel the country’s stellar recovery from the brink of default in the 2010s.
“When someone humbly knocks on the door, they can sit at the table with us,”…
…the late Amália, the grand dame of fado, proclaims in her signature song Uma Casa Portuguesa, lauding the hospitality of Portuguese homes. It’s this hospitality that has powered much of Portugal’s transformation from problem to poster child. Foreign tourists, wealthy expats, and investment into the booming industry of catering to them were lured by picturesque cities and wild beaches — and by tax incentives and clever schemes that made them affordable.
Over the ten years before the pandemic, annual tourist arrivals nearly tripled to peak at twice the size of Portugal’s own population. Within the same period, the number of residents from the 30 wealthiest countries by GDP per capita increased tenfold in Lisbon. Growth bounced back, in line with a shrinking budget deficit and falling unemployment.
The comeback has been hailed as a blueprint. Foreign Policy declared Portugal “a model for the world” that shows “other small countries the path to recovery”.
But in tourist hotspots, new residents have increasingly moved from a seat at the table to supplanting the hosts. In Lisbon, about one in ten properties is now registered as tourist accommodation; another 15% of dwellings in the city stand empty, possibly serving as holiday homes or speculation objects. With surging demand from wealthy outsiders, some statistics now see Lisbon’s rents at the level of Barcelona’s, one of Europe’s most expensive cities.
At the same time, Portugal’s average wages remain in the bottom-5 of the EU. The mismatch has left local youths struggling to find affordable apartments and given rise to horror stories about elderly people who were evicted to make space for new developments. Yet given Portugal’s dependence on foreign spending — among European economies, Portugal’s is the second-most dependent on tourism — there is not much leeway for an economic U-turn.
More Housing is the government’s attempt at a split between maintaining its economic success formula while mitigating the worst effects.
Thus, it provoked predictable outrage on both sides. When the legislation was first outlined the Portuguese Association of Real Estate Developers decried an “attack on private property”. The left-wing opposition criticised a new “ocean of fiscal freebies” for investors that left “banking interests untouched”. Marcelo Rebelo de Sousa, Portugal’s president, weighed in: “The housing package is inoperable”, he grouched.
The scepticism is not misplaced. At close inspection, many measures seem inconsequential — the provisions of the infamous forced renting policy mean it’s bound to shrivel in practice.
Others are outright contradictory: More Housing introduces tax breaks for investments into rental housing developments but radically caps the rent that landlords can extract from new leases; likewise, the golden visa scheme is scrapped but the digital nomad visa including its expat tax privileges remains in place.
Yet the troubles of More Housing don’t mean that Portugal’s investment-friendly economic strategy is a failure.
Several obvious roadblocks to the supply of affordable housing that have been left untouched could be removed without reducing investment incentives. Eliminating them would go a long way in making Portugal’s growth model socially sustainable.
“It’s the limitation of space that increases prices, because it limits supply,” Susana Peralta, an economist at the NOVA University Lisbon, reminds policymakers in a recent op-ed. While More Housing subsidises residential developments, it does little to offer new space for it. Ms Peralta suggests improving Portugal’s weak transportation links to allow for greater urban sprawl.
Making subsidies work also requires a reform of complicated regulations and slow licensing procedures, oft-lamented by developers. Portuguese construction lags its European peers. In 2021, only two new flats per 1,000 people were completed, according to EUROCONSTRUCT, a consultancy — the second-worst performance among the 23 European countries surveyed.
A similar option would be to boost construction of publicly funded housing. Portugal’s social housing stock is among the lowest in the OECD at 2% of all dwellings.
For the moment, though, it looks like many Portuguese will have to console themselves with another Amália aphorism about Portuguese homes that rings almost cynical in the current situation: “The joy of poverty lies in the great richness of giving and being happy.”
