The so-called ‘housing crisis’ in Portugal is not new. Even though public opinion has highlighted it more vehemently only in the last two years, this 'crisis' was born and grew as a result of a lack of proactivity on the part of those responsible for various Governments, and right in front of their eyes. It derives from the combination of several structural factors in Portuguese society (on this topic you can read our article: https://www.mouramarques.pt/en/post/the-pressure-on-the-residential-market-in-portugal).
However, despite being well identified for some time, it was only at the end of 2023 that a legislative package was approved with a set of structured (and supposedly structuring) measures that aimed to positively impact the housing market in Portugal. Some have an immediate impact, allegedly to meet the population's urgent needs, others point to medium and long-term effects. This program of measures was called "Mais Habitação" (“More Housing”).
As a result of last March's legislative elections, a new Government took office at the beginning of this month (April 2nd). In its Program (presented on April 10th) several measures were indicated for the Housing sector, with some of them aiming to nullify the impact aimed at by the most controversial measures of the “More Housing” program.
In a democratic State and regime and in an economy that is fundamentally based on the free market, legislative uncertainty and instability strongly affect the various economic sectors. And, for a variety of reasons, they further condition a sector such as Real Estate - in general - or Housing - in particular - where investments to be made by the private, public and cooperative sectors require extended deadlines to be implemented. In other words, they need perspectives of long-term stability in economic and fiscal policies that condition the assumptions that were the basis for the planning and execution of these investments.
Hence, many of the economic agents who have ongoing investments in the real estate sector (promoters, builders, owners, landlords, tenants) as well as others who need or wish to have them (those previously mentioned and even young people and new households in formation), now pay attention to the measures that the recently sworn-in Government includes in its Program.
These measures still require discussion and approval in the Portuguese Parliament. Knowing that the current composition of the Parliament and the coalitions and agreements (not) created between the main political parties are such as to create some expectation in relation to what will be approved, this article aims to state which measures of the Government Program are directly applicable to Housing in Portugal, as well as launching some perspective of approval and promulgation of some of these measures.
Government Program for Housing
Main objectives:
Significant increase in the supply of Private, Public and Cooperative housing
Stability and confidence in the rental market
Support for vulnerable tenants demand
Support to first home acquisition by young people
Revocation of measures from the “More Housing” program
Objective: Increase the housing stock in Portugal
1.1. Make various limitations more flexible, namely:
land occupation,
urban densities (including high-rise construction),
constructive requirements,
urban perimeters
The implementation of these measures will be very dependent on what one can and wants to do in terms of changes to the Municipal Guidance Plans (PDM in Portuguese), which prefigures discussions at municipal level and the need to have the proposals presented approved (after long discussion processes). in Municipal Assemblies.
1.2. Create conditions for “agricultural housing” at more affordable prices in rural and interior areas, namely through the creation of new urbanizable areas in the Municipal Guidance Plans (PDM), mainly in municipalities threatened by significant population loss.
Like the previous measure, we do not believe that this is a measure with an immediate impact, in addition to requiring approval at the level of the Municipal Assemblies (and the respective majorities that can be formed at a political-party level).
1.3. Inject into the market, in a quasi-automatic way, vacant or underused properties and public land
Once the public real estate assets are properly inventoried and classified, all that remains is to clarify what is meant by "almost automatic form". However, this inventory and proper classification remains to be done.
At this point there is a clear agreement between the various parties with seats in the Assembly of the Republic: the inventory of this public real estate heritage is fundamental and it must be used to increase the housing supply in the country.
1.4. Implement an exceptional and temporary regime for the elimination or reduction of tax costs in construction or rehabilitation works on properties intended for permanent housing, whether or not located in an Urban Rehabilitation Area (ARU), through:
substantial reduction or elimination of urbanization, building, use and occupation taxes
application of the minimum VAT rate (6%) on construction and rehabilitation works and services, in addition to the extension of deductibility
Of course, there will be discussion around the exceptional nature and duration of these measures. However, these are measures very well received by the real estate sector, certain that they will have a positive impact on housing costs in the short term and will increase supply in the market. These measures will be easily approved in the Parliament.
1.5. Implement public-private partnerships (PPPs) for large-scale construction and rehabilitation of both general housing and student accommodation
As a principle, it will always be supported, but it remains to be seen under what terms these partnerships can be created. And what are the criteria for private individuals to apply for them? But "the ball is in the court of the State", which, through the Government, will have to be able to motivate private parties to these partnerships.
In the Parliament this measure could pass with the votes of the majority of the right-wing parties, although it is certainly one of the measures most prone to controversy, given the ideological nature that the discussion on PPP's always entails.
1.6. Stimulate and facilitate the introduction of new accommodation concepts in the Portuguese market, including through a “regulatory sand box” (structure created by a financial sector regulator to allow small-scale, live testing of innovations by private companies in a controlled environment under regulator supervision).
Possible examples: build-to-rent projects, mixed housing with urban density bonuses for moderate-cost housing, co-living, modular housing, housing cooperatives, flexible dual use of student residences. Let's have those stimuli for these new concepts!
1.7. Analyze the recent legislative framework for urban planning licensing and control (Urbanistic Simplex), always reinforcing the path of simplification and reduction of obstacles to licensing and transition from a model of prior urban control to subsequent inspection.
Anyone who knows the Urbanistic Simplex measures well knows that there are very worthy measures and that the sector has been looking forward to them for a long time. However, some of them may have gone too far (see the non-obligation to present a license of use for the definitive transaction of a property).
Post-clearance inspection, in some situations, may have implications that are too costly for some of those involved in the process. We fear that the inability to make some services and resources more efficient (thus making processes time-consuming) will lead to the simplification and abandonment of the necessary security that a licensing and construction process should have for the agents involved. Our society has never been strong in adequate and timely supervision...
1.8. Implement a policy of sustained public transport provision that allows for the increase of urban perimeters and the shortening of physical and temporal distances between existing ones.
Nothing to oppose to the principle, but it remains to be seen what the answer to “how?” is. Let us wait to analyze more concrete proposals.
Objective: Increase stability and confidence in the rental market
2.1. Evaluate the impact of measures implemented over the last 8 years in terms of leasing and works, with particular emphasis on duration and contract renewals, with subsequent legislative review, depending on the results.
The years 2022 and 2023 showed us how measures that are too restrictive for owner-landlords have a negative effect on the rental supply. And we know how a smaller volume of supply gives the latter greater negotiating power (namely over prices). A careful process of analyzing the impact of what has been done in recent years and what could lead to a more balanced market (with a greater volume of supply and lower prices) is required.
But can this analysis and consideration be able to put aside political-party dogmas and place people at the top of the priorities from a perspective of balance and sustainability of this market in the long term?
We don't know... but the current political-partisan spectrum tells us that changes to the restrictive measures that affect the supply side are expected.
2.2. Review and accelerate rapid dispute resolution mechanisms in cases of non-compliance with lease contracts.
This is a decades-long “cancer.” It cannot be about left or right policies, but social justice. A landlord and a tenant are not right-wing or left-wing (or vice versa), but are people, to whom justice is due. And this only truly exists if it manages to be timely. Therefore, review yourself and speed up what you can and need to speed up.
2.3. Evaluate the rent insurance mechanism (provided for in the law since 2013 and implemented only in 2019), with the creation of incentives for its adoption, in conjunction with the possible replacement of guarantor and advance income mechanisms.
It is not clear why there is so much delay in implementing mechanisms for accessing rent coverage insurance under a rental contract. We all know that the market is defending itself against the risk of non-compliance with payments by imposing the obligation to present guarantors, charging excessive (and illegal) deposits and a high (and illegal) number of rents paid in advance.
Objective: Support financially vulnerable tenants
3.1. Replace administrative price limitations with public subsidy for tenants in situations of vulnerability/effective need (measured according to effort rate and income level).
We repeat here what we already commented above in point 2.1., that is, the years 2022 and 2023 showed us how measures that are too restrictive for owner-landlords generate a negative effect on the rental offer. The imposition of a maximum ceiling on the annual increase in rents (although with tax benefits for landlords), generated a contraction in supply, a decrease in the average duration of rental contracts, and the imposition of higher rent values in new contracts , greater litigation, etc. In a scenario of high shortage of housing units in the rental market in Portugal, it will be necessary to implement measures that do not hinder supply (which, on the contrary, requires stimulation), but rather directly protect the most fragile demand.
This measure eliminates restrictions on supply-side pricing, preferring support to demand. Clearly it is a topic whose discussion will weigh the ideology and vision of society that supports each political party. Maintaining the current composition of the Parliament in terms of deputy mandates, it is expected that it will be approved and applied in the short term.
3.2. Maintain - until the market stabilizes - the dynamic income subsidy that guarantees a contribution to families with high effort rates.
The Government's program already mentions this: the Tax Authority will frequently check the universe of rental contracts and will grant a contribution to families with higher effort rates, unlike the current support for renting, which is limited to the existence of contracts March 2022.
It will also be a measure that is easy to approve - in the current situation in the Parliament - and can be applied immediately.
Objective: Support young people buying their first home
4.1. Exempt the acquisition of residential properties from Municipal Tax on Onerous Real Estate Transactions (IMT) and Stamp Tax (IS).
4.2. Provide public guarantees to young people to enable bank financing of the entire purchase price.
It should be noted that the program that the Democratic Alliance (AD) presented in the electoral campaign mentioned that this support is aimed at “young people up to 35 years of age”. However, the Government's program only mentions "young people", without any age limitation. Could it mean that it intends to review the limit of "35 years" initially announced? It may want to promote the debate of ideas about this limitation in the Parliament? We do not know...
But we would like it to be possible to "stretch" this exemption a little further, since the real estate sector is one of the sectors that has the highest tax burden on the transactions it carries out.
Several parties presented electoral programs that defend similar measures. Differences in detail may be discussed and approved, but it will be a measure easily approved and immediately applicable.
Objective: Revoke erroneous measures of the “More Housing” program
The Government proposes to revoke - and quickly - some measures that have generated a variety of controversies, namely:
forced leasing;
income freeze;
extraordinary contribution on local accommodation (CEAL);
expiry of AL licenses prior to the “More Housing” program;
... among other measures that are considered disproportionate.
We are defenders of private property, but not the abandonment of it to the clear detriment of the urban context in which it is located. For several years now, legislation has existed that allows municipalities to compulsorily intervene in situations of dilapidated buildings. Comply with the legislation.
As regards vacant but not degraded buildings, it will be necessary to act on the side of stimulating supply and not penalizing the owners. What could lead an owner of one (or more) vacant buildings to put it on the rental market? Several stimuli are possible, so we will have to act on that side.
Regarding the freezing of rents, we have already commented above in point 3.1.
With regard to Local Accommodation (AL), this is a clear example of expectations created among economic agents, who launched themselves into the market from a medium and long term perspective, only for the previous Government to abruptly demand an extraordinary contribution on their activity.
The imposition of an expiration of AL licenses within a period of five years, in addition to the suspension of the granting of new licenses, regardless of housing needs or AL business ratio in each municipality, were measures that had a violent negative impact on this sector.
There may be others, but these measures outlined above will quickly be taken to discussion (which will be lively) in the Assembly of the Republic where they will end up being approved by the current center-right majority.
Final considerations
The "housing crisis" in Portugal is a fact. We have been in the sector long enough to identify the strong imbalances that exist within it.
The previous Government - although late and at a bad time - promoted the discussion of various measures for the sector. Some worked, others didn't. We must take advantage of reading the results of what went wrong and what went well, to quickly change measures with a negative impact and further encourage those with a positive impact.
The current Government proposes a set of measures that, due to their characteristics, will be easily approved by the current center-right parliamentary majority. Hence, a rapid discussion and approval of these measures is expected.
Regardless of the prevailing political ideology in our society, what the real estate sector needs is policy stability. It needs to create and maintain a long-term vision, which adds value to the country and its people, which does not have to be frequently changed due to profound and (dis)structuring legislative changes, carried out in accordance with the political trends of the party(ies) in power.
Do you need any advice regarding the measures that should be implemented with an impact on Housing?
Do you need support with any real estate investment or divestment?
Don't hesitate and contact me:
Marco Moura Marques
+351 967 035 966
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