Homes in Portugal Among Most Overvalued in Europe, Says EU Report
A new report from the European Commission shows that house prices in Portugal are among the highest in Europe. Tourism and problems in the construction sector are the main reasons.
House prices have gone up a lot across the European Union over the past ten years, and Portugal is one of the countries where homes are most overvalued.
The report, “Housing in the European Union: market developments, underlying factors and policies,” published on Tuesday, says that between 2014 and 2024, house prices in the EU grew by an average of 50%. But in countries like Hungary, Lithuania, Czechia, Portugal, Estonia, Bulgaria, and Poland, prices increased by more than 200%.
Factors driving high house prices in the EU include higher interest rates, demand from wealthy families and investors, more short-term rentals, and a lack of new housing.
In some areas, house prices are higher than their real value, and this is especially true in Portugal. The report estimates that prices in Portugal are about 35% overvalued, making it the only EU country where overvaluation grew significantly by 2024.
Tourism and Short-Term Rentals
Tourism and short-term rentals are key reasons for high house prices in Portugal. The report says that more short-term rentals in tourist areas have pushed house prices and rents up.
Platforms like Airbnb have reduced the number of long-term rental homes, which has made housing more expensive. The report notes that in popular areas like historic city centres, both rents and house prices have risen due to tourism and home-sharing.
Portugal is the EU country where tourism has had the biggest impact on house prices, according to the report.
This problem also affects countries like Spain, where big cities such as Barcelona face issues with overtourism.
Institutional investment
Portugal has one of the lowest amounts of public housing in Europe. Only about 2% of homes are owned, managed, or supported by the government or local authorities, according to a study by the University Institute of Lisbon (ISCTE).
The European Commission reports that in some cities, companies own a part of the housing, and years of low interest rates have increased interest from institutional investors. These investors, like insurance companies and pension funds, have helped push property prices up over the last ten years, especially in major cities. In Portugal, pension funds are heavily involved.
Problems with getting building permits are slowing down the growth of public housing. In Portugal, Croatia, Spain, and Greece, building permits are at near-record lows. One reason is slow bureaucracy. Most EU countries have set deadlines for permits, ranging from 3 weeks in Lithuania to 31 weeks in Portugal. Complex paperwork also causes delays. The study suggests that simplifying these rules could make things more efficient.
Vacant properties
The large number of empty homes is also limiting housing in Portugal. Across Europe, about one in six properties is vacant. Portugal is among the countries with the highest number of empty homes, along with Bulgaria, Romania, Malta, Cyprus, and Hungary.
Portugal and the housing crisis
Housing is a major political issue in Portugal. Rising rents and the lack of affordable homes have led to protests and criticism of recent governments.
Suggested solutions include a new tax incentive for construction. VAT will be reduced to 6% for building homes up to €648,000, and this 6% rate will also apply to rentals costing up to €2,300. This is aimed at areas under high pressure, like Lisbon, Porto, and nearby municipalities.
Most of these measures need approval from parliament, but some changes will affect the rental market directly.
In June, the European Commission warned that Portuguese governments were not doing enough to address the housing crisis. It recommended concrete actions, such as rent controls and limits on certain types of rentals.
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