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Incomes Reach 5-Year High in Portugal – Executive Summary

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The crisis in the rental market in Portugal continues to worsen, with rents reaching a five-year high in June 2024. This continued increase in rents, albeit slower, reflects an insufficient housing supply to meet the country's high demand.

Since 2019, the rental market in Portugal has seen a clear growth in rents, with the average value rising from €11.4 per square metre (m2) in June 2019 to €16.2/m2 in June 2024. This 41% increase reflects a growing imbalance: while demand for rental homes increased by 165% between the first quarter of 2019 and the same period in 2024, supply increased by only 36%.

Experts point out that factors such as rental risks, legislative instability and high income taxes have slowed the arrival of new homes on the rental market. This imbalance is particularly evident in Lisbon and Porto, where demand has greatly outstripped supply, leading to significant rent increases.

In Lisbon, demand for rental homes has more than doubled since the beginning of 2019, while supply has grown by just 5%. As a result, rents have risen by 43% in five years, reaching €21.5/m2 in June 2024, one of the highest values ​​ever in the capital.

In Porto, demand has also more than doubled, while supply has increased by 74%, but is still not enough to keep up with the 122% growth in demand. This mismatch has led to a 61% increase in rents, reaching €17.2/m2 in June 2024.

To alleviate the rental access crisis, the Montenegrin government has implemented several measures. These include the expansion of income support and the Porta 65 Jovem programme. In addition, tax measures are being prepared such as reducing VAT from 23% to 6% on build-to-rent projects and tax deductions for investors in real estate funds that encourage affordable rent.

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The previous Costa government also implemented measures to support families, such as an exceptional rent subsidy of €200 and a 2% cap on rent renewals in 2023 and on new leases in 2024.

Despite government measures, Portugal’s rental access crisis does not seem to have an end in sight in the short term. Last year, market confidence was shaken by high inflation and high interest rates on housing loans, leading to a 36% drop in demand for rental homes between the beginning of 2023 and the first months of 2024. Even with an 81% increase in the national housing supply, rents have continued to rise, albeit at a slower pace.

In Lisbon, supply doubled, but demand fell by 48%, which led to an 8% increase in rents. In Porto, demand also fell by 36%, with supply doubling, but rents rising by 13%.

This scenario shows the increasing difficulty Portuguese households face in paying their rent, with the effort rate having increased significantly in recent years. At the beginning of 2024, households allocated an average of 81% of their disposable income to paying rent, a significant increase compared to 71% at the beginning of 2023.

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