Timo Leidecker
OECD
OECD Economic Surveys: Portugal 2026
Abstract
Structural challenges in Portugal’s housing market, compounded by resurging demand, have undermined housing affordability. Many people struggle to buy or rent a home, pay off their mortgage, move, or invest to improve poor housing quality. Young people are disproportionately affected. Improving access to housing will require comprehensive reforms to remove investment obstacles and use existing housing more effectively. Building regulations and spatial planning can be made more flexible. Gradually shifting from taxing transactions towards taxing property ownership and imposing higher effective taxes on underused properties can bolster supply, promote a more efficient allocation of housing, and improve equity. Developing weak rental markets will be important to expand the supply of more flexible housing. Complementing such market reforms with greater investments in social housing and more targeted housing allowances can better protect low- and middle-income households. To improve poor housing quality, tackle energy poverty, and meet climate goals, stronger incentives and support for energy renovations will be key.
Many people struggle to access affordable and quality housing in Portugal. Housing markets face several structural challenges, including regulatory barriers to housing investment, weakly developed rental markets, and limited support for vulnerable households. Economic developments in the early 2000’s and 2010’s – first a mostly debt-financed housing boom amidst declining borrowing costs and rising incomes, and later weakening housing demand during Portugal’s economic crisis – mitigated these challenges (Lourenço, Moura and Rodrigues, 2025[1]; Rodrigues, 2022[2]). From 2000 until 2013 house prices declined (Figure 4.1). When demand began to pick up again, the constraints imposed by deficiencies in the housing market became more visible. Since 2013, growth in house prices has outpaced most other euro area and OECD countries. With sluggish investment in new dwellings, weak incentives to use available housing efficiently, a segmented rental market offering limited options for new tenants, low support for people who cannot afford housing at market prices, and often poor housing quality, this left many – often young – people struggling to afford adequate housing. This chapter documents the main structural challenges facing the Portuguese housing market and proposes solutions to boost its efficiency, promote affordability and inclusiveness, and accelerate building renovations.
Price-to-income ratio, 2015 = 100
Note: The OECD aggregate corresponds to the simple average of the OECD countries. The Euro area aggregate corresponds to the 20 OECD members countries of the European Union. Data correspond to an index base 2015, seasonally adjusted not calendar adjusted.
Source: OECD Affordable Housing (database).
4.1.1. The housing market faces many structural challenges
Housing investment over the last two decades has been weak (Figure 4.2). The sluggish response of supply to growing demand (see Section 4.1.2) suggests structural investment barriers. Labour productivity in construction is low (Figure 4.3). This points to weak competition, likely resulting from high construction costs and reflecting perceived regulatory barriers (EIB, 2024[3]; IMF, 2024[4]). Following the 2000’s economic crisis, business dynamism and the number of construction firms declined (Lourenço and Rodrigues, 2017[5]). Skill shortages have contributed to rising construction costs (Figure 4.3). Meanwhile, long delays in obtaining building permits weigh particularly on small and young firms, while changes to spatial planning restricted land for development and likely led to rising land prices (see Section 4.2.1).
Note: Panel A: The Euro area aggregate corresponds to the 20 OECD members countries of the European Union.
Source: Panel A: Eurostat; Panel B: OECD Affordable Housing (database).
Note: The EU corresponds to the composition of European Union as of 2020. Panel A: Graph shows data on residential buildings, except residences for communities. 2023 figures for EU and France refer to 2022. Panel B: Labour productivity measured as gross-value added divided by total employment by sector (1-digit NACE Rev. 2).
Source: Eurostat.
An additional challenge is that the large housing stock is used inefficiently. Portugal has one of the largest housing stocks relative to its population in the OECD (Figure 4.4, Panel A). At the same time, the share of dwellings not used for primary residences – being either vacant (12% of dwellings in 2021) or used as holiday homes (19%) – is highest among the OECD (Figure 4.4, Panel B). Thus, despite the large number of dwellings, overcrowding grew strongly over the last decade and was close to the EU average in 2023 (Figure 4.4, Panel C). The share of young adults aged 29 to 35 years old still living with their parents is among the highest in the EU (Figure 4.4, Panel D). While underused housing may not be located where demand is high and, as discussed below, many dwellings require renovations to become inhabitable, relatively high shares of both vacant and holiday housing across regions suggest potential for improvement. For example, the share of vacant housing ranged from 10 to 16% across regions in 2021, and from 10 to 38% for holiday housing, being high also in Lisbon’s city centre (14.9% vacant and 9.3% holiday homes in 2021). Using the existing housing stock effectively to meet housing needs thereby hinges on residential mobility. However, tax incentives to bring vacant buildings to the market or free up underused dwellings are weak (see Section 4.2.2). Residential mobility is further hindered by underdeveloped rental markets (see Section 4.2.3). Besides undermining an effective allocation of housing, low residential mobility exacerbates skill mismatches, contributing to skill shortages and making labour markets less resilient (OECD, 2021[6]).
Note: Panel A: Data refer to the responses as in the 2023 and 2021 OECD Questionnaire on Affordable and Social Housing (QuASH) except for Czech Republic, Hungary and Italy where data refer to RESH - Structural Housing Indicators - ECB Statistical Data Warehouse (europa.eu). Panel B: Dwellings not used as primary residence are either vacant or used seasonally. Panel C: Data refer to households' income group below 60% of median equivalised income. Panel D: Data refer to persons living with their parents or contributing/ benefiting from the household income (population aged 18 to 34 years old). Panel C & D: The EU corresponds to the composition of European Union as of 2020.
Source: Panel A & B: OECD Questionnaire on Affordable and Social Housing (2021 and 2023); Panel C & D: Eurostat.
People who cannot afford housing at market prices often receive limited support. The government and many municipalities significantly raised investment in social housing in recent years. Still, the social housing stock was among the smallest in the OECD in 2022 (Figure 4.5). Spending on housing allowances is limited and appears poorly targeted, suggesting that many vulnerable households lack adequate support (Section 4.3). Limited social housing and housing allowances also pose a barrier to developing the private rental market. To assure affordable housing for older tenants, subsequent governments repeatedly prolonged strict rental regulations for contracts signed before 1990, after which rent controls and tenancy protection for new contracts were significantly eased (see Section 4.2.3). Supporting sitting tenants by preventing landlords from adjusting rents to market levels – rather than by providing social housing or housing allowances – discouraged investments in the rental market and so raised rents for prospective tenants, while failing to offer adequate support for people without a low-rent contract.
Social rental housing stock, % total number of dwellings, 2022
Note: The OECD aggregate corresponds to the simple average of the OECD countries.
Source: OECD Affordable Housing (database).
The quality of the housing stock is often poor. The share of people living in a dwelling with a leaking roof, damp walls or rot in windows is among the highest in the EU (Figure 4.6, Panel A). Low housing quality contributes to high levels of energy poverty, despite Portugal’s warm climate and overall low energy demand for housing, and undermines people’s health and well-being (Section 4.4) (Republica Portuguesa, 2021[7]). Investment barriers discussed above, as well as limited incentives for landlords to pay for refurbishments (Section 4.2.3), contribute to low housing quality (Alves et al., 2023[8]; Mendes, 2022[9]).
%, 2023
Note: The EU corresponds to the composition of European Union as of 2020. Panel A: Poor housing quality is defined as dwelling with leaking roof, damp walls, floors or foundation, or rot in window frames of floor.
Source : Eurostat- EU-SILC Survey.
4.1.2. Recent growth in demand has exacerbated housing challenges
Renewed growth in overall housing demand – both domestically and from abroad – met with the structural challenges discussed above and led to a surge in housing prices (Rodrigues, 2022[2]; Lourenço, Moura and Rodrigues, 2025[1]). While some regions saw stronger growth, the latest available data indicate that the increase was widespread across the country (Figure 4.7). Coastal and urban regions, where most people live and most tourism and economic activities are concentrated, generally experienced the strongest increases (Bank of Portugal, 2024[10]). Internal migration patterns added to country-wide price pressures at the local level.
Note: Dwelling is normally intended to accommodate only one family, on the condition that it is not being used for other purposes at the period of reference. Panel A: Geographical breakdown at the parish level occurs only in the municipalities of the metropolitan areas of Lisboa and Porto, the Algarve region and other municipalities with more than 100 thousand inhabitants (2021 Census). Panel B: Parish's geographical level is available only in the metropolitan areas of Lisboa and Porto.
Source: INE.
The main drivers of housing demand include household income and demographic changes (Alvarez-Roman and Garcia-Posada, 2021[11]). Real disposable income declined after the Great Financial Crisis but returned to grow from 2014 onwards, outpacing the EU average and peer economies (Figure 4.8). Portugal’s population rebounded beginning in 2018, as population ageing and emigration was compensated for by rising immigration both from EU and non-EU countries (Figure 4.9). The share of people with foreign citizenship increased from 3.5% in 2014 to 9.8% in 2024 (Eurostat, 2025[12]). While some migrants appear relatively wealthy compared to the domestic population, many migrants work in low-skilled jobs, likely demanding low-price and often rental housing (Reis Oliveira, 2023[13]). Although population growth was modest, the number of households increased more strongly, by 13% from 2010 to 2023, reflecting a trend towards smaller households (Figure 4.9).
Government programmes increased demand from abroad, but their impact on housing prices has yet to be assessed fully. With a view to boost the Portuguese economy after the Global Financial Crisis, subsequent governments offered tax benefits or residency to skilled workers, pensioners and foreign investors (Box 4.1). Comparatively low real estate prices by international standards may have further added to Portugal’s attractiveness (Martins et al., 2021[14]). Housing demand from foreigners was sizeable – accounting for about 10% of the value of housing all housing transactions between 2019 and 2024 – and focused on more expensive properties, likely reflecting their relatively higher purchasing power and minimum investment requirements (Figure 4.10). Empirical analysis using data from 2007 to 2019 links the Portuguese Golden Visa programme to stronger price growth for properties around the minimum investment threshold of EUR 500,000 (Pereira dos Santos and Strohmaier, 2024[15]). However, the average price of real estate sold is much smaller and amounted to about EUR 113,000 in 2020 (INE, 2024[16]). The impact of foreign demand on price segments below EUR 500,000 has not yet been quantified. Making administrative data available for research could allow assessing by how much programmes affected housing demand and investment across market segments and regions. This could inform future policy measures and assess to what extent recent revisions to these programmes may contribute to easing demand pressures.
Gross real disposable household income, 2014 = 100
Note: The EU corresponds to the composition of European Union as of 2020. Peers is the unweighted average of Germany, France, Italy and Spain.
Source: OECD ADB.
Growing tourism has added to housing demand. Overnight stays increased by 15% from 2019 to 2024, and total revenue from tourist accommodations increased by 55% over the same period (Turismo de Portugal, 2023[17]). The spread of short-term rentals may have had large impacts in some areas. In Lisbon, for example, the number of listed AirBnBs rose from 18,277 in September 2019 to 21,181 in December 2024, corresponding to about 7.6% of all dwellings in the urban area (Inside Airbnb, 2024[18]; Garha and Azevedo, 2021[19]). Research has found a close link between the number of short-term rentals and housing prices in Lisbon at the local level (Batalha et al., 2022[20]; Goncalves, Peralta and dos Santos, 2020[21]). Effects are likely highly spatially concentrated, however. In Lisbon, for example, most AirBnBs are concentrated in the historic city centre (Garha and Azevedo, 2021[19]). While neighbouring areas may be affected through spillovers to a limited extent, rent price increases in the wider metropolitan area outpaced increases in the city centre, including districts such as Santa Maria Maior where many short-term rentals are located (INE, 2024[16]).
Note: Panel C: The EU corresponds to the composition of European Union as of 2020. Data for emigration total for 2014-2020 are missing from source.
Source: Panel A: INE. Panel B, C & D: Eurostat.
Note: The EU corresponds to the composition of European Union as of 2020. Panel A: Prices for dwelling sales in last 12 months. Panel B: Share of total value of transactions in EUR.
Source: INE.
In the wake of the 2008 Global Financial Crisis and ensuing economic crisis, Portugal instigated several measures to attract investment, spending and skills from abroad:
In 2009, the government first launched the Non-habitual Resident programme (NHR) which ran until the first half of 2025. It offered tax benefits on foreign-source income (if covered by a double taxation agreement) for up to 10 years for people becoming tax residents, i.e. spending at least 183 days per year, in Portugal. For pensioners, the programme first offered a tax exemption on foreign-sourced pension income and was later revised to offer a reduced tax rate at 10%; professionals working in certain high-value added activities (e.g. R&D, Medicine Doctors, ICT Technicians) paid a reduced tax rate of 20% on employment or self-employment income gained in Portugal. In 2023, 114.645 NHR beneficiaries resided in Portugal.
In 2012, the government launched the Residence Permit for Investment Activity programme (ARI). The programme, also referred to as Golden Visa programme, offers residency permits to investors in real estate, private equity or entrepreneurship. The minimum spending for real estate purchases ranged from EUR 350.000 to 500.000. Investments in real estate were excluded from the programme as off October 2023. Between 2012 and 2023, 11.382 residence permits were issued to real estate investors.
In 2024, the incumbent government launched the Fiscal Incentive for Scientific Research and Innovation programme (IFICI). It builds on the NHR but abolishes tax benefits on pension income to focus exclusively on attracting highly educated or experienced professionals working in specific fields (e.g. R&D, higher education, start-ups, health, management). As in the NHR, income gained in Portugal from these activities will be taxed at 20%.
Source: (IMF, 2024[4])
4.1.3. The impacts of rising housing prices have been unequal
Rising housing prices have weighed on households’ purchasing power, with mortgage holders and tenants most vulnerable to rising housing costs (Lourenço, Rodrigues and Vilares, 2023[22]). House prices have outgrown incomes since 2013 (Figure 4.1). Many low-income households are overburdened by housing costs (Figure 4.11). How people have been affected generally depended on their tenancy situation (Figure 4.12):
Full homeowners – about 46% in 2022 – were mostly shielded from higher costs while seeing the value of their home increase.
Homeowners with a mortgage – about 30% in 2022 – faced rising mortgage costs, after they had benefitted earlier from low interest rates. Loans with variable interest rates are common in Portugal and accounted for 62% of the mortgage stock in late 2024, meaning that monetary tightening was quickly passed on to mortgage holders (Figure 4.13). Several government measures helped contain the rise in mortgage costs in 2023 and 2024 (IMF, 2024[4]). Going forward, a combination of elevated housing prices, high household indebtedness, and high use of variable rate mortgages requires on-going monitoring (Chapter 1).
Tenants renting their home – about 22% of households – often faced higher rents. How much rents increased varied depending on the type of rental agreement (Section 4.2.3). Rental caps for existing leases limited increases to 2% and 7% in 2023 and 2024 respectively, and rent increases for new leases were exceptionally limited to 2% of the previous rent in 2023.
Share of households in bottom-quintile of income distribution spending more than 40% of disposable income on rent and mortgage costs, %
Note: The OECD aggregate corresponds to the simple average of the OECD available countries (New Zealand data are missing). Housing costs cover only those relating to mortgage costs (principal repayment and interest payments) and rental costs (for both private market and subsidised rental housing).
Source: OECD Affordable Housing (database).
%, 2022
Note: The EU corresponds to the composition of European Union as of 2020. OECD and EU averages refer to countries for which all tenure types are available.
Source: OECD Affordable Housing (database).
With most full homeowners being old, the burden from higher housing costs often fell on the young. People who wanted to buy or rent a home for the first time, or people who wished to move, either faced higher costs or abstained from moving, thus remaining in unsuitable accommodation or missing out on opportunities such as a better paying job. Many young people – who are less settled and often can earn higher wages abroad – may be driven to emigrate. In a 2023 survey, 44% of respondents considered leaving Portugal due to difficulties in finding affordable housing (FFMS, 2023[23]).
Note: Panel A: Data refer to stock of loans for purchase or construction of personal and permanent residential property granted by banks (other monetary financial institutions) to residents in monetary union (households and non-profit institutions serving households) as of December 31st of the reference year. Panel B: Variable rate is defined for up to 1Y initial rate fixation. 2024 data for Finland refer to Q2.
Source: Panel A: Banco de Portugal; Panel B: European Mortgage Federation.
4.1.4. Comprehensive housing market reforms are needed
Portugal launched multiple policy packages to tackle the housing affordability challenge in recent years (Box 4.2), aiming to stimulate housing supply and supporting access to affordable housing. Measures, discussed in more detail throughout the chapter, notably comprised tax incentives for construction, supply of long-term rentals, and residential mobility; support for young first-time buyers through tax exemptions; investments and reforms to boost social and affordable housing; as well as direct support for tenants through rent caps and housing allowances.
Given the scale of housing needs, however, additional reforms are needed. Further increasing the supply of affordable housing and improving housing allocation remain central. Section 4.2 discusses how simplifying building permits and spatial planning, reforming housing taxation and re-balancing rental regulation can remove barriers to housing investment and promote residential mobility. Such reforms take time to show an effect on supply and may not address the needs of vulnerable households in the short term. Section 4.3 therefore discusses how further expanding social housing and better targeting housing allowances can ensure more households can access adequate housing. The poor quality of much of the existing housing stock also undermines living standards and hinders achieving climate goals. Section 4.4 thus focuses on measures to scale up energy renovations.
Exploiting policy complementarities will be essential to make reforms more effective (Table 4.1). For example, re-balancing rental regulations to attract more private investment will need to be accompanied by sufficient and well-targeted housing allowances to protect low-income tenants. But to avoid these allowances fuelling price pressures, a more responsive housing supply is needed. Ensuring adequate funding for public investment to maintain and develop public spaces will be important to complement residential construction. Measures discussed in this Survey to reduce economy-wide regulatory burdens (Chapter 1) and ease labour shortages (Chapter 2) would support private and public investment. Similarly, removing investment barriers would stimulate competition and productivity in the construction sector, lowering costs for social housing, renovations and developing the rental market. Clear rules allowing landlords to recover costs from upgrading dwellings would also boost energy renovations, especially if combined with financial support to mitigate cost pressures on tenants.
Complementarities of housing policies between selected policy areas
Source: OECD.
In October 2023 “Mais Habitação” programme was passed. Main measures include:
the personal income tax rate (PIT) on income from long-term rentals was reduced; rental income until 2029 for owners switching from short- to long-term rentals was fully exempted from PIT; land purchases for affordable rental construction were exempted from the transaction tax (IMT) and the recurrent property tax (IMI). In 2024, measures to restrict the issuance of new licenses for short-term rentals across Portugal were revoked while restrictions at the local level were allowed.
rent increases for new contracts were capped at 2% of the previous rent to slow down rent adjustments.
gains from selling residential property to the state, or gains re-invested in owner-occupied and permanent housing of the seller or a member of his family, were exempted from capital gains tax.
municipalities were allowed to further raise the aggravated rate for the recurrent property tax IMI on vacant buildings and undeveloped parcels of land for construction in urban pressure areas. Measures to force vacant buildings to be rented out under certain conditions had been issued but were revoked in 2024.
In May 2024 the “Construir Portugal” programme was passed. Main measures include:
simplification of procedures to transfer rural to urban land for construction of residential properties with at least 70% of the construction area being allocated to social or affordable housing.
first-time buyers up to 35 years old are fully exempt from the transaction tax and stamp duty when purchasing their first permanent home up to EUR 324,058, and partially exempt for properties to EUR 648,022; young buyers with low- to middle-income benefit from a public guarantee of 15% of mortgage (for property values up to EUR 450,000).
4.2.1. Making building regulations more investment friendly
Land use regulation – including spatial planning and permitting systems – is a key determinant of housing supply (OECD, 2021[6]). Portugal’s legal framework provides the basis for investment-friendly regulations, for example by avoiding overlap between local and national actors and concentrating strategic decision-making at the central level (Ziemann, 2024[27]). Likewise, the formal regulatory framework for building permits is generally well-aligned with best practices, requiring for example a certified engineer or architect to oversee compliance (OECD, 2023[28]; World Bank, 2024[29]). These advantages notwithstanding, perceived regulatory burdens appear to weigh on housing investment (IMF, 2024[4]; EIB, 2024[3]; ESCO, 2021[30]; OECD, 2023[31]). Remaining obstacles may reflect issues with implementing the generally pro-competitive regulatory framework, e.g. weak enforcement of existing rules, lack of administrative capacity, or cumbersome secondary regulations (OECD, 2023[31]; World Bank, 2024[29]). While Chapter 1 discusses policies to reduce regulatory burdens in the wider economy – which can help to also foster housing investment – this section focuses on policies to improve regulations specific to construction, notably for obtaining building permits and on land-use.
Simplifying building permits
Procedures to obtain building permits are often burdensome and lengthy. While the national government sets the framework for building regulations, municipalities are key actors to set local building standards and issue permits. Although overall it takes long to obtain a building permit, differences in transparency, digitalisation of procedures and administrative capacities lead to significant differences in delays across municipalities (World Bank, 2018[32]; World Bank, 2024[29]; OECD, 2023[31]). In 2023, the number of days for obtaining a building permit ranged from 272 (Funchal) to 548 (Coimbra), taking long also in Lisbon (545) and Porto (453) (World Bank, 2024[29]).
Recent measures aimed to speed up permitting procedures. Fixed timescales and tacit approvals for construction projects to simplify processes were introduced in 2024. The occupancy permit needed after construction to use the building – which took between 65 to 155 days processing – was abolished (World Bank, 2024[29]). The government is also preparing reforms under the Simplex Urbanístico initiative that aim to improve transparency and streamline and simplify permitting processes further. While these measures are welcome, effective implementation will be key. Previous experiences with tacit approval for industrial and environmental licensing have had limited effectiveness (OECD, 2023[31]). For example, some public entities have been reported to send multiple requests for additional information to extend time limits; processes were put on hold while responses from other public bodies were pending; or it was difficult to prove that deadlines justifying tacit approval had passed. Investors partly attributed resulting delays to insufficient civil staff in public administration (OECD, 2023[31]). Strengthening capacities of agencies involved in issuing permits, e.g. by bolstering human or financial resources, may be needed to assure that statutory deadlines can be met. Portugal could also follow the Netherlands who, based on stakeholder consultations during a housing summit in 2024, announced plans to speed up permitting procedures by setting parallel planning as a standard, for example to run environmental assessments and engineering reviews simultaneously rather than sequentially (OECD, Forthcoming[33]).
There is room to standardise requirements and make information more easily accessible. To request a building permit, developers need to consult various regulations and standards and obtain preapprovals from utilities, with requirements and fees generally differing across municipalities. Reports suggest that local regulations can be difficult to navigate and documentation requirements can be excessive and require specialists to fulfill, or lead to errors in project documentation that cause delays; similarly, building permit fees are often complex to calculate (World Bank, 2018[32]; OECD, 2023[31]). Additional burdens can arise because information about requirements is difficult to access. Information on preapprovals required from specialised agencies is generally lacking, and information on building fees is sometimes outdated (World Bank, 2024[29]). Making information more easily accessible across municipalities – for example by following Porto, which offers a detailed online manual for going through the construction permitting process – would make the process less burdensome. Harmonising requirements across municipalities would additionally increase predictability for investors (OECD, 2023[31]).
Efforts to streamline procedures should be complemented by promoting a more widespread adoption of digital services. While applications in Porto and Lisbon have been fully digitalised, several municipalities still require physical submissions on paper or disks and do not permit online payments or provide notifications on status of the application (World Bank, 2024[29]). Portugal is currently developing a national platform (Plataforma Eletrónica de Procedimentos Urbanísticos - PEPU) designed to unify and simplify urban planning and building procedures across municipalities. Such a platform could act as a digital one-stop-shop – to request building permits while providing information on requirements and fees through a single website – to improve processing times and efficiency (World Bank, 2024[34]). Similar platforms have been introduced in several countries, for example in Croatia, Hungary and Estonia. Doing so may require improving coordination among stakeholders, e.g. to assure that all agencies involved in the permitting process can access all relevant information.
Additionally, small municipalities may struggle to deal with spatial planning and issuing building permits effectively. While overall municipalities in Portugal tend to be large, population size varies considerably across municipalities, with 38% of municipalities having less than 10,000 inhabitants (OECD, 2020[35]). Promoting coordination among smaller municipalities, e.g. by establishing inter-municipal bodies dedicated to spatial planning, could save on fixed costs for setting up services, and allow greater staff specialization. In Mexico, for instance, municipalities can delegate technical tasks related to the implementation of spatial planning to a Municipal Urban Planning institute, while retaining competencies to decide about local building regulations and spatial plans (OECD, 2024[36]).
Improving spatial plans
Recent measures aim at making more land available for development. A 2024 reform of the land use law (Lei dos Solos) introduces a time-limited (four year) mechanism to allow municipalities to reclassify rural land for housing, under strict affordability, infrastructure, financial feasibility, urban adjacency and environmental protection rules (República Portuguesa, 2025[37]). At least 70% of the developed land must be dedicated to public housing, affordable rentals or controlled-cost housing. Municipalities can via simplified amendments to municipal plans facilitate the availability of land.
While promising, the impact of the reform remains to be seen and will depend on municipal implementation capacity and the extent to which it addresses longer-standing challenges, discussed below, to respond flexibly to changes in housing demand. Municipalities have greater autonomy, but also greater burden for technical review and economic justification. Environmental protected areas remain prohibited, but there are concerns around enforcement and speculative pressures near rural-urban boundaries.
Several longer-standing challenges have characterised spatial planning in Portugal in the past. Large and persistent discrepancies between the number of planning permits approved and developed suggest that land is frequently held in the hope that land prices rise (de Deus et al., 2023[38]). An additional challenge is urban sprawl, which is common particularly around metropolitan Lisbon, Porto, and Algarve (Abreu e Silva and Correia, 2023[39]; Cavaco et al., 2021[40]). Reforms in 2014 and 2015 aimed at countering speculation and densifying developments, but the resulting land planning system has been criticised as rigid and complex (Jorge et al., 2022[41]; OECD, 2017[42]). These reforms also reduced land for development, including by abolishing the land use category of “land for development”, which was reverted back to rural land, as well as reverting back urban land in case of investment delays (Cavaco et al., 2021[40]). However, land conversion has remained comparatively high during a period of low construction of new dwellings, suggesting that land may continue to be used inefficiently (Figure 4.14). This may reflect weak compliance. A study focusing on a municipality in Algarve found high shares of development occurring outside of designated areas (de Deus et al., 2023[38]).
A comprehensive review of spatial planning is needed. This review should identify any remaining bottlenecks in spatial planning regimes that hinder expanding development in areas where unmet housing needs are high and containing urban sprawl, and assess whether competing concerns between land use and environmental protection are safeguarded by the current planning system. Promoting more compact development would also support cutting emissions from transport, by making public transport infrastructure more efficient and reducing driving times (Chapter 3).
Ensuring that municipalities have sufficient capacities to regularly revise spatial plans and strengthening enforcement mechanisms to prevent unauthorized developments will be needed for effective implementation. Revising spatial regulations could additionally be complemented by incentives set by municipalities to counter speculation and foster compact development, e.g. by applying the additional real estate tax aggravation for undeveloped land designated for construction in urban pressure areas (see Section 4.2.2) and adjusting development charges – i.e. one-off levies charged on developers to finance costs associated with new development – to reflect the true costs of providing infrastructure in more remote or less densely populated areas (OECD, 2017[43]).
Loss of natural and semi-natural vegetated land from 2015 to 2020, percentage point change from base in 2000
Note: The OECD aggregate corresponds to the simple average of the OECD countries. The EU corresponds to the composition of European Union as of 2020.
Source: OECD Land cover change in countries and regions (database).
4.2.2. Housing tax reforms to improve equity and housing dynamism
Portugal’s housing tax mix lowers mobility, weakens incentives to bring underused properties to the market, and contributes to intergenerational inequality. Recent tax policies have aimed to strengthen incentives to expand housing supply and better support vulnerable groups, notably the young (Box 4.2), and are complementing rental subsidies and a growing but still limited social housing stock (Section 4.3). However, there remains scope for additional tax reforms to raise revenue more efficiently and equitably, including by gradually shifting from transaction towards recurrent property taxes, tightening rules for taxing capital gains, and strengthening taxes for underutilised homes in high demand areas.
Shifting towards recurrent taxes on immovable property ownership
Portugal’s reliance on transaction taxes impedes an effective use of its large housing stock. While the overall tax burden is low, revenues from taxing property transactions account for a larger share of total public revenues than on average in the OECD, while the share from recurrent taxes on property ownership is relatively low (Figure 4.15). Transaction taxes penalise downsizing and reallocation, with higher transaction taxes being correlated with lower residential mobility across the OECD (Andrews, Caldera Sánchez and Johannson, 2011[44]; OECD, 2022[45]). By contrast, recurrent property taxes are generally considered less distortive than taxes on transactions and to be one of the most growth-friendly forms of taxation (Arnold et al., 2011[46]; OECD, 2022[45]). Reducing transaction taxes while strengthening recurrent taxes on immovable property as part of a broader reform package would help make housing markets more efficient and could provide fiscal room for investments or lower other taxes (see Chapter 2).
Outdated property values for recurrent taxes are a main factor driving low taxation of homeownership. The main tax for owning immovable property is the Municipal Real Estate Tax (IMI). The tax rate is set by municipalities within a range determined by the national government (0.3-0.45% of tax base for urban real estate) (Leodolter, Princen and Rutkowski, 2022[47]). Owners of very high-value properties worth more than EUR 600,000 additionally pay a real estate wealth tax (AIMI) of at least 0.7%. The tax base for IMI and AIMI is based on cadastral values, which were last reviewed in 2015, and is updated annually based on national inflation and local coefficients to align with market values. In practice, however, the adjustment process appears insufficient. As real estate prices soared – and despite minimum and maximum tax rates remaining largely constant – revenues from recurrent taxes stagnated (Figure 4.16). Basing annual property valuations on recent sales or rent data, combined with property-specific data to compare similar properties, would strengthen the effective taxation of ownership. Experience from Canada, the Netherlands and the USA suggests that computer-assisted mass appraisals (CAMA) can help to contain administrative costs of regularly updating property values based on market data (OECD, 2021[48]).
To enhance political acceptability, strengthening taxation of property ownership should be done gradually and consider transitional measures to protect taxpayers from significant increases in property tax obligations (OECD, 2022[45]). Shifting the tax mix from transaction towards recurrent property taxes could impose an undue tax burden on those who paid high transaction taxes before the reform and need to pay high recurrent taxes thereafter. Given the strong price increase in recent years, aligning outdated property tax values with market prices could also lead to liquidity issues, especially for asset-rich households with low income. To address this, Portugal could follow Canada and Denmark in offering targeted tax deferrals to delay payments for low-income and older homeowners until they have greater liquidity, e.g. when their house is sold or transferred (Box 4.3).
% of GDP, 2023
Note: The OECD average is computed based on preliminary data. Data for Australia are missing. Panel B: Data for Greece are missing. Panel B & C: A selection of OECD countries is shown. Panel C: Includes taxes on the issue, transfer, purchase and sale of non-financial and financial assets, taxes on forms of payment, and taxes levied on specific legal transactions such as validation of contracts and the sale of immovable property; excludes capital gains tax.
Source: OECD Revenue Statistics (Database).
Revenues from recurrent taxes on immovable property and nominal house prices (2013 = 100)
Source: Eurostat; OECD Revenue Statistics (database).
Limiting capital gains tax exemptions
Capital gain tax exemptions on primary residences contribute to high windfall gains on house price increases and increase intergenerational inequality. Selling property is in principle subject to capital gains tax. However, for real estate only 50% of the gains are taxed, and owner-occupiers who re-invest gains in another primary residence are fully exempt. Capital gains tax exemptions, combined with low effective recurrent taxes on immovable property, mean that mostly older homeowners saw sizeable and largely untaxed wealth increases. By contrast, young people who did not yet own any property saw no corresponding rise in wealth but faced higher barriers to homeownership. The government is supporting young people through lower transaction taxes and guarantees, which helps to mitigate the rise in intergenerational inequality (Box 4.2). For example, exemptions on transaction taxes for young buyers for an average sized house, worth about EUR 200,000 at 2024 median prices, amounts to about EUR 5600.
Exemptions also contribute to the preferred tax treatment of owner-occupied housing, which OECD analysis suggests can hinder the development of rental markets by distorting investment incentives (see Section 4.2.3) (Arnold et al., 2011[46]; OECD, 2022[45]). Portugal phased out regular programmes for mortgage tax relief, the most common form of support for homeownership in OECD countries, in 2011 (Barrios Cobos et al., 2019[49]). However, partly reflecting capital gains tax exemptions, returns on investments in owner-occupied housing continue to be taxed at lower effective rates than returns from investments in rented residential property (Millar-Powell et al., 2022[50]).
Portugal could consider revising capital gains taxation and exemptions. While capital gains tax exemptions on primary residences are often justified as support for homeownership, their effectiveness may be limited as benefits only apply when the home is sold (OECD, 2022[45]). Capping the capital gains tax exemption on the sale of main residences, to ensure that gains above a certain value are taxed, could strengthen progressivity and create fiscal space, while still exempting capital gains for most households.
Several OECD countries provide property tax deferral schemes, which are commonly restricted to certain types of taxpayers, including seniors and low-income households. Deferrals can also be used as transitional measures during reforms to protect taxpayers from significant increases in property tax obligations.
In Canada, provincial and local governments administer tax deferral schemes, which are commonly restricted to seniors, widowed and disabled taxpayers. Tax deferrals are commonly capped and interest (at or below market rate) is charged on the unpaid amount. The province of Alberta offers a “Seniors Property Tax Deferral Program” providing taxpayers with a low-interest equity loan on their primary residence, which covers property tax payments until the sale of the house (or any earlier date), at which point the loan is repaid plus interest (the programme charges simple instead of compound interest). Only taxpayers over 65 are eligible under the condition that they hold at least 25% equity in their primary residence and the property is covered by insurance.
In Denmark property tax values had been frozen over 2002-17, which contributed to booming housing prices and a fall in effective tax rates. In 2017, a major property tax reform was passed which entailed a reassessment of properties’ tax values towards market values. Updated tax liability assessments began to be issued in 2021. Given the nearly two decade-long tax freeze, reassessments had been expected to significantly raise tax obligations. To cushion the increase in tax liabilities, alleviate liquidity concerns and increase political support, this tax reform included a property tax deferral scheme that allowed deferring increases in tax liabilities until the sale of the property.
Source: (OECD, 2021[48]; OECD, 2022[45]).
Strengthening taxation of vacant real estate
Portugal’s vacant property tax regime has strong design elements de jure but is undermined by weak enforcement and outdated cadastral values. Despite a levy on buildings that have been unoccupied for more than one year since 2005, a persistently high share of vacant dwellings – including in high demand areas like Lisbon – suggests weak effectiveness (Figure 4.17, Panel A and B). More than half of vacant dwellings – about 350.000 units – are thought to require medium-scale renovations to become inhabitable. Many owners may lack funds for these works. The government is currently preparing a financing scheme for urban renovation and affordable housing development. This could complement fiscal incentives to bring these properties back to the market. Portugal’s levy is applied in the form of aggravated rates of recurrent tax on immovable property (IMI). While minimum aggravated rates for vacant dwellings correspond to 3 times the IMI rate, municipalities have the option to declare urban pressure areas to impose up to 20 times IMI rates, with additional incremental increases for each year the dwelling remains vacant, capped at 30 times IMI rates (PWC, 2025[51]). However, while potential rates are high, effective taxation may be low because of either low tax bases, only minimum rates being applied, or vacant buildings not being identified as such.
Source: OECD Affordable Housing (database); INE.
Updating the tax base for aggravate IMI to reflect current values would go a long way to significantly increase the effective financial cost of keeping dwellings vacant. Aligning property values with 2024 market prices could more than double aggravated taxes, to up to EUR 11,900 annually for an average sized dwelling in Lisbon. Moreover, raising the minimum rate in urban pressure zones could also help. The current minimum rate (e.g. 0.9% in Lisbon) may not be dissuasive enough. The City of Vancouver saw a more pronounced decline in vacant buildings after raising their Empty Homes Tax from 1.25% to 3% of taxable property value for dwellings (Box 4.4) (Housing Vancouver, 2024[52]).
Enforcement to identify vacant buildings should be strengthened. In 2023 municipalities had identified 12,803 vacant dwellings. However, census data from 2021 suggest a substantially larger number of vacant dwellings. While part of the dwellings identified as vacant in the census may have been rented informally or have been vacant for less than one year (see Section 4.2.3), the large discrepancy suggests that many vacant dwellings are not subject to aggravated tax rates. Experience from OECD countries suggests that levies have a limited effect on reducing the number of vacant dwellings unless they are backed up by robust monitoring (OECD, 2022[45]). Since 2019, Portugal allows using data from water and electricity consumption to identify vacant buildings, which is welcome. Efforts to identify vacant buildings could be further expanded by drawing on various data sources, including for example tax databases and the land registry. Additional inspections may be necessary to verify information. As described in Box 4.4, the City of Vancouver has greatly reduced the number of vacant buildings through high tax rates coupled with frequent audits and hefty penalties for non-compliance.
The definition of vacant buildings could also be strengthened to raise effective taxation on under-used properties in high-demand areas. For example, Vancouver defines dwellings as vacant when they are used less than 6 months in the preceding year, as opposed to dwellings that have been unoccupied for more than one year in Portugal (Box 4.4) (República Portuguesa, 2019[53]). This could entail imposing aggravated rates on the high share of secondary homes (Figure 4.17, Panel C and D). Given that secondary real estate is predominantly owned by wealthy households, this would make Portugal’s tax mix more progressive (OECD, 2022[45]). Some landlords may also circumvent paying aggravated rates by converting their dwelling into short-term rentals. This could be addressed by only considering long-term tenancies when assessing whether a unit has been occupied (OECD, 2022[45]). Similarly, charging higher taxes on undeveloped land would discourage holding land as an asset for speculation and help to boost construction (see Section 4.2.1). In Finland, for example, allowing municipalities to impose higher tax rates on undeveloped versus developed land zoned for construction was associated with a sizeable increase in residential developments (Lyytikäinen, 2009[54]). In Portugal, municipalities can choose to apply aggravated tax rates on undeveloped land in urban areas under the current legal framework by declaring them as urban pressure zones.
In 2017 the City of Vancouver, Canada, introduced the Empty Homes Tax to bring more vacant buildings to the market. While some exemptions apply, the levy is generally applied to vacant residential dwellings that have not been used as a primary residence for at least six months of the preceding year. It was gradually raised from initially 1% of the taxable property per year to 3% in 2021.
To assess which dwellings are vacant, residential property owners are required to declare the status of their property every year. Dwellings can also be deemed as vacant if no declaration was submitted or through audits. A false declaration can be fined up to CAD 10 000 per day (about EUR 6600).
To enforce compliance, the city uses risk-based as well as random audits. The number of audits completed in 2024 – which may verify declarations for earlier vacancy reference years – corresponded to about 7.8% of existing dwellings that year. The number of vacant buildings as well as non-compliance – i.e. declarations that have been falsified through audits – have been steadily decreasing (Table 4.2).
Note: Numbers refer to vacancy reference years. 1: Audits completed by 1 November of respective year. 2: Non-compliance rate refers to share of non-compliant audits by reference vacancy year.
4.2.3. Developing private rental markets
Portugal’s rental market remains underdeveloped and fragmented. Only 12% of households rented in 2022 (Figure 4.18, Panel A), among the lowest share in the OECD. Informal rentals remain widespread, with fiscal audits suggesting that up to 60% of leases may go undeclared (República Portuguesa, 2024[56]). This limits tenant protection and reduces fiscal revenues. The resulting shortages of formal rental housing particularly affect young and low-income people, who are less likely to own property and face limited affordable options (Figure 4.18, Panel B).
Past reforms aimed at boosting rental supply have achieved only limited success due to persistent regulatory fragmentation, with leases signed before 1990 continuing to be subject to much stricter regulations compared to leases signed afterwards, and frequent policy changes creating uncertainty for investors (Box 4.5). Portugal has taken steps to make renting more attractive in recent years, including through tax incentives for long term leases (Box 4.2), its Affordable Rental programme offering time-limited full tax exemptions on income earned from leases renting at 80% of the local median rent per m2, and by offering compensation to landlords with pre-1990 contracts which in December 2024 amounted to about EUR 150 per month and lease. However, more comprehensive reforms are needed to provide stable and balanced regulations and revise rent-setting mechanisms to promote investment and contain informal and short-term rentals. These efforts should be combined with improved housing support to ensure equity and political feasibility.
From 1910 to 1990: Rent controls date back to 1910. In 1948, rent freezes introduced in Lisbon and Porto were extended across the entire country. In 1975, rent ceilings were added on new contracts in old buildings. In 1981, rent schemes were introduced to establish criteria for rent increases. However, permitted annual increases were often below inflation. In 1966, rental agreements were extended indefinitely. Reasons to terminate rental leases were generally restrictive, excluding for example the death of the owner. As a result, lease agreements signed up until 1990 were generally open-ended contracts with tight rent control.
From 1990 to 2006: In 1990, several changes were introduced for new leases, including the possibility for limited duration contracts, strengthening owner rights to terminate the contract in case of non-payment, and increasing rents in line with consumer price inflation. Changes did not apply to existing contracts, leading to a split in rental regulations for contracts signed before 1990 and after.
From 2006 until 2012: In 2006 the New Urban Tenancy Regime made provisions to adjust rents for pre-1990 contracts, while maintaining tenancy security regulations. With rent increases capped and often conditioned on costly renovations for housing with poor quality, success for adjusting rents was limited.
From 2012 until 2017: In 2012 the Revision of the New Urban Tenancy Regime abolished minimum duration requirements for new leases, extended reasons for terminating contracts, and facilitated eviction procedures to take on average three to four months. Rents for pre-1990 contracts could in principle be adjusted and leases terminated, while a transitional regime protected old, disabled and low-income tenants and was repeatedly extended.
From 2017 until present: Several changes extended minimum lease durations and automatic renewal, while restrictions were introduced to terminate contracts for tenants above 65 years living under fixed term leases for over 15 to 20 years. In 2023, transitions for pre-1990 contracts towards new regulations were abolished and replaced by compensations to the landlords on the difference between the annual rent and 1/15th of the property tax value (República Portuguesa, 2024[26]).
%, 2022, or latest available year
Note: Panel A: Data for the United States are calculated using experimental weights due to the lack of representativeness of the pandemic edition of the ACS. Panel A & B: Tenants renting at subsidized rent are lumped together with tenants renting at private rent in Australia, Austria, Canada, Chile, Colombia, Costa Rica, Denmark, Mexico, New Zealand, Türkiye and the United States, and are not capturing the full extent of coverage in Sweden due to data limitations. Data for Australia, Korea, New Zealand, Switzerland, United Kingdom and the United States refer to 2021, for Norway and Türkiye to 2020, for Canada to 2019, for Iceland to 2018. OECD and EU averages refer to countries for which all tenure types are available.
Source: OECD calculations based on the European Survey on Income and Living Conditions.
Providing predictable and uniform rental regulations
Rental markets have become less regulated over time, but progress has been incomplete. For new contracts, rental regulations are broadly aligned with other OECD countries. For example, landlords can raise rents in line with inflation and end contracts if tenants fail to meet their obligations, and in the case of open-ended contracts, also in case of major renovations, if landlords need the dwelling for themselves, or with five-years advance notice (Table 4.3). However, pre-1990 contracts – accounting for about 15% of active leases in 2021 and decreasing due to the age of tenants – are still rent-controlled and nearly impossible to terminate (Box 4.5) (Figure 4.19). Several reform attempts have failed to align regulations across old and new rental contracts, with planned measures sometimes postponed or later rolled back, which may have fostered a perception of policy uncertainty and deterred investors. Reforms in 2006 and 2012 may have introduced additional regulatory breaks.
Regulatory differences between contracts signed at different times are accompanied by large and persistent discrepancies in rent levels (Figure 4.19). In 2021, 35% of leases signed until 2005 still had rents below EUR 100, while only 4% of contracts signed after 2016 had such low rent levels. Large differences in rent levels create lock-in effects for older tenants and discourage downsizing and residential mobility. Landlords gaining low rent levels on contracts they cannot terminate are also unlikely to invest in their property, aggravating poor quality challenges. The resulting shortage in housing supply in turn makes it more difficult for prospective tenants, often young people, to find rental housing at affordable prices (Franco, Fernanders and Francisco, 2025[57]).
Mapping out how many old contracts remain as part of an ongoing review of rental market regulations and, if applicable, phasing out restrictive regulations by transitioning pre-1990 leases into the Affordable Rental Programme could help create a uniform regulatory framework that balances owner rights with tenant protection and allows for regulatory stability. Such a reform should be informed by a thorough analysis of social and budgetary impacts. By making rental markets more attractive for investors, while ensuring access to affordable housing as well as expanding social housing rather than restrictive rent caps and indeterminate contracts for a subset of leases, would protect sitting tenants and improve access to housing for prospective tenants and those wishing to move (de Boer and Bitetti, 2014[58]).
%, 2021
Source: INE.
Better aligning rents with market developments
Portugal generally imposes no restrictions for setting rent levels when signing a new lease, although in 2023 rent increases for new leases were exceptionally limited to 2% (Box 4.2). Rents for existing contracts (signed after 1990) can be increased in line with consumer price inflation. Such indexing protects tenants against large rent increases and is applied in several OECD countries (Table 4.3). However, raising rents in line with headline inflation does not reflect increases in input costs for rental markets – notably house prices – and does not account for local developments (Figure 4.20). This can restrict supply especially in areas where high demand is leading to strong increases in house prices. Relatedly, landlords are not permitted to adjust existing rents to reflect increases in costs – including for maintenance and renovations. This increases risks and limits incentives to invest in housing quality or energy-efficiency improving renovations (Section 4.4) (OECD, 2025[59]). Meanwhile, with about 70% of rented dwellings located in houses built before 1990, when energy-efficiency standards were first introduced, renovation needs are high (IHRU, 2023[60]).
Rent setting could be improved to better reflect market developments. Germany, for example, used local reference rents – based on average prices of new leases and rent increases in existing contracts for comparable dwellings – to cap rent increases. This would allow adjusting to market developments while protecting tenants against excessive rent increases (de Boer and Bitetti, 2014[58]). To balance incentives for renovations with security for tenants, countries such as France and Ireland introduced exemptions from indexed rent increases for house upgrades (Whitehead and Williams, 2018[61]).
Price indices for existing rent contracts versus consumer and house prices, 2000 = 100
Note: Price indices computed as cumulative change based on annual rates of change. Rent price index for existing contracts based on rent adjustment coefficients. Consumer price index based on headline inflation measured as annual average rate of change. House price index captures price changes of all new and existing residential properties purchased by households.
Source: www.portaldahabitacao.pt and Eurostat.
Tackling informal and short-term rentals
Informal renting reinforces market segmentation, undermines tenant security and can subtract from supply for long-term renting, for example when landlords shift to informal short-term rentals. It can be difficult to detect, with income from both long-term and short-term rentals involving relatively small amounts spread over many taxpayers who are not typically subject to third party remittance or reporting (OECD, 2022[45]). Measures discussed in Section 4.2.2 – to identify and mobilise vacant or underused dwellings – would help to detect and deter informal renting, for example by raising taxation on informally rented dwellings declared as vacant, or by strengthening compliance through more frequent audits. In 2024, Portugal also introduced measures allowing tenants to register rental contacts with the tax authority, which is welcome. Introducing third-party reporting requirements – for example for digital platforms, as recently done in Denmark and France – could further enable the tax authority’s ability to detect potential tax evasion (OECD, 2022[45]). Additionally, Portugal could consider requiring registering a tax ID when signing a rental contract, and link information gained from municipalities enforcing vacancy taxes with national tax authorities.
The rise of short-term rentals poses additional regulatory challenges. Relatively stronger regulations for long-term rentals can make it more attractive for landlords to rent dwellings on a short-term basis. In 2023, Portugal prohibited issuing any new licenses for short-term rentals. Measures were revoked in 2024, giving municipalities the power to restrict or suspend issuance of new licenses based on local conditions (República Portuguesa, 2025[37]). As short-term rentals are highly spatially concentrated, allowing for discretion at the local level is welcome (Garha and Azevedo, 2021[19]).
Source: OECD Questionnaire on Affordable and Social Housing (QuASH) (2021).
As in other OECD countries, many people cannot afford adequate housing at market prices (OECD, 2021[6]; OECD, 2023[62]). Households with very low incomes and those living in dynamic metropolitan and touristic areas are particularly affected. In many Portuguese regions, rental costs for a relatively small flat would consume most of – and in metropolitan Lisbon even exceed – their net income (Figure 4.21). The share of overburdened low-income households is correspondingly high (Figure 4.22, Panel A). In addition, Portugal appears to exhibit a “missing middle”, i.e. low- to middle-income households who are not eligible for social housing but who cannot afford adequate housing at market prices (Figure 4.22, Panel B and C) (OECD, 2023[63]). Owners with a mortgage, who accounted for 28% and 35% of households in the second- and third income quintile in 2022, seem to be particularly affected (OECD, 2025[59]). Providing targeted support to low-income households as well as promoting the development of social and affordable housing will be key to complement policies improving housing market functioning.
2022
Note: Panel A: Bars in light blue correspond to subdivision NUTS1 (National); Bars in dark blue correspond to subdivision NUTS2 (Regions). Panel B: a small flat is defined as the half of an average sized flat, corresponding to 112 sqm.
Source: OECD calculations based on INE data.
%, 2022, or latest available year
Note: Panel A: The OECD aggregate corresponds to the simple average of the OECD countries. The EU corresponds to the composition of European Union as of 2020. Housing costs are considered as a share of household disposable income, which includes social transfers (such as housing allowances) and excludes taxes. Panel B: Includes mortgage principal repayment and interest payments; Panel C: Includes private and subsidised rent.
Source: OECD Affordable Housing (database).
4.3.1. Providing more social and affordable housing
Portugal’s social housing stock is small. Social housing accounts for a much lower share of the housing market than the OECD average (Figure 4.23). Historically focused on supporting the poorest households, access is managed through waiting lists that imply long delays. In Porto, for example, average rents for social housing correspond to one fifth of average rents in the city. With about 1000 families applying for 300 available flats per year, they need to wait on average over 3 years to get access.
Low public investment over decades has contributed to the shortage. Although public spending in housing has increased in recent years, it remains low. In 2022, Portugal spent only about 0.1% of GDP on social housing (Figure 4.23). Recovery and Resilience Plan (RRP) funding of over EUR 1.2 billion is expected to provide housing for around 26,000 households by 2026 through construction and purchasing and renovating existing dwellings (European Commission, 2024[64]), a welcome step but still far below the scale needed to significantly reduce waiting lists. Indeed, municipalities have identified more than 125,000 households living in conditions of housing deprivation (IHRU, 2023[65]). For comparison, catching up to the average share of social housing in OECD countries which, like Portugal, use a targeted approach – with a comparatively small stock aimed at very low income households – would require about seven times the increase foreseen in the RRP (OECD, 2020[66]).
Municipalities will need to play an important role in scaling up provision but many lack the means to do so. While they provide the bulk of social housing today (84%) (Figure 4.23), their investment capacity and administrative capabilities vary widely. National support through loans and grants has been helpful, but to meet future targets, the central government should consider setting municipal level investment targets based on local housing needs and existing supply. To avoid crowding out other housing, targets could prioritise newly constructed social housing (Boulhol, 2011[67]). Such targets should be accompanied by sustained funding and technical assistance. This could be supported by plans to introduce an Emergency Housing Fund, financed by allocating 25% of stamp duty revenue to housing support. The current legal framework allows municipalities to require developers to allocate parcels of land to social and affordable housing, comparable to what is done in cities like London, New York, Paris, and Vienna (OECD, 2023[68]). With several actors involved in providing housing support, coordination between national and local providers will be key to ensure that all those in need are reached, avoid overlaps, and facilitate assessing the effectiveness of programmes.
Note: Panel A: Conventional dwellings rented of usual residence (No.) by Geographic location at Census date [2021] (NUTS - 2013). Panel B: Data for Australia, Czechia and the United States are based on the fiscal year, rather than the calendar year. GDP is adjusted to reflect this. Data refer to 2022, except for Poland (2023); Czechia and the United States (FY 2022-2023); Australia (FY 2021-2022); Austria and Germany (2021); New Zealand, Estonia, Denmark, and Belgium (2020), Ireland (2019); France (2018); Finland (2017). GDP data for Czechia, Poland and the United States are estimated using approximations from the OECD Economic Outlook. For France, the figure represents spending by national government only, even though other levels of government also contribute to the financing of social housing; these amounts were not available.
Source: Panel A: INE; Panel B: OECD Affordable Housing (database).
Improving the use of the existing stock will be essential for equity and efficiency. In much of the country, eligibility criteria for social housing are not reassessed systematically and rents are not regularly updated, even when a tenant’s financial situation improves (OECD, 2025[59]). In Porto, for instance, surveys are conducted but leases are not terminated when tenants no longer qualify. In Lisbon, contracts are supposed to be reviewed every three to five years, but enforcement is unclear (Camara Municipal de Lisboa, 2012[69]; Camara Municipal de Lisboa, 2013[70]). Very low rent levels thereby imply high fiscal costs for providing social housing (Republica Portuguesa, 2025[71]), meaning fewer resources are available for adding new capacities. OECD countries such as Belgium, Czech Republic, or Latvia regularly review eligibility criteria to terminate the lease if conditions are no longer met. While this frees up limited capacities for those most in need, potential costs entail disruptions for previous tenants as well as the risk of overconcentration of deprivation in social housing. The government is currently reviewing eligibility criteria and rent adjustments for social housing. To preserve leases for tenants who may no longer qualify but increase revenues from social housing, which can be used to re-invest in expanding capacities or covering operational costs, it could consider following OECD countries such as Canada, Poland, Japan or France to enforce regular reassessments of eligibility conditions and, if applicable, adjust rents (OECD, 2025[59]). In either case, such measures should be designed carefully to avoid adverse work incentives or undermining the social mix.
Municipalities such as Lisbon and Porto have started to additionally provide affordable housing. These programs aim to reach the “missing middle” (Lisboa Camara Municipal, 2023[72]) excluded from both social housing and private rental markets. In Lisbon and Porto lottery-based schemes now offer price controlled five-year rental contracts to eligible applicants. Around 6800 households are expected to be covered by 2026 under the Recovery and Resilience Fund (European Commission, 2024[64]). While helpful additions, these efforts will need to be scaled up and better integrated with broader housing policy.
Leveraging private and non-profit actors could help expand social and affordable housing more sustainably. Portugal lacks a tradition of limited profit housing providers, which play a crucial role in other OECD countries - e.g. in Austria, Canada, Denmark (Figure 4.24). In Austria and the Netherlands, such actors deliver most affordable housing. Setting up such schemes at scale would, however, take a long time. To broaden supply and reduce reliance on public social housing construction in the longer term, Portugal could pilot revolving funds, e.g. by setting up a scheme as a “proof of concept”, which have proven successful to develop affordable housing in several OECD countries (Box 4.6) (OECD, 2023[63]). Portugal could also pilot tax incentives, as seen in the United States to crowd in private investment.
Share of total social renting stock by providers, %, 2022
Source: OECD Affordable Housing (database).
Several OECD countries support the provision of affordable and social rental housing by non- or limited profit providers through financial support.
In Austria, development and maintenance of the social housing stock is supported by revolving funds. Approximately 40% of a typical project is financed through bank mortgage loans, with the remainder financed through public loans at favourable conditions and equity contributions from housing associations. The Limited-Profit Housing Act sets out the key governance principles for housing associations, including a limitation of nominal capital paid out to shareholders of 3.5%, a calculation of prices based on actual costs, a continuous reinvestment of capital and a regular audit of the efficient use of resources. Core activities of housing associations are exempted from corporation tax. The business model is based on cost-recovery and re-investment of surpluses into new construction or renovation. This means that a housing association is legally required to charge the cost it takes to build and maintain a house.
In Denmark, the National Building Fund provides social and affordable housing as an independent institution outside the state budget. Funding is based on a share of tenants’ rents in addition to housing associations’ contributions to mortgage loans. A share of tenants’ rent is used to pay off the housing agency’s mortgage loan for the first approximately 30 years, at which point the share is allocated to the state for another ten years. Once this period is over, the share is allocated to the National Building Fund. Approximately one-third of the Fund’s resources are used to support the construction of new social housing. Municipalities approve rent schemes, administer rent subsidies, organize the production and maintenance of schemes, and have a key role in monitoring and regulating associations. They also decide whether housing associations can build in their municipality and which types of dwellings will be built.
In some countries, for-profit providers of social and affordable housing are common and are supported through tax incentives.
In the United States, the development of social housing units through private investors is supported through the Low-income Housing Tax Credit programme (LIHTC). Participating developers are offered an annual income tax credit of either 30% or 70% of their project’s costs spread over a ten-year period. The extent of the reduction is determined by a set of criteria linked to the project’s scope. Larger credits are applied to new construction or substantial rehabilitation and smaller credits are applied to properties acquired for rehabilitation and for projects funded using tax-exempt bonds. To qualify, owners or developers must ensure that sufficient shares of tenants earn below specified income thresholds and must rent the units at below-market rates over a 15-year period.
Source: Adapted from (OECD, 2020[66]), (OECD, 2023[63]) and (OECD, 2022[45]).
4.3.2. Expanding and better targeting housing allowances
With the stock of social and affordable housing still limited and only gradually expanding, housing allowances play an important role in helping low- and middle-income households afford rental payments and in supporting the development of the rental market. Portugal offers several housing allowance programmes that contribute to rent payments (Box 4.7). However, overall spending on housing allowances as well as the share of recipients is low and targeting appears weak. In 2022, a larger share of upper income households received support compared to low-income households (Figure 4.25). Most existing programmes are available for households with gross annual incomes above EUR 40,000, even though 80% of tax households earned below EUR 28,650 in 2022 (INE, 2024[16]). The newly introduced PAER programme, which is automatically granted based on tax data and runs until 2028, expanded coverage to 5.7% of all households in 2023 (Box 4.7).
To ensure equitable support, housing allowances for vulnerable households should be increased and better targeted. A review of existing programmes is needed to simplify the system, focus benefits on lower income households and ensure that support levels are adequate to meet housing costs. One point could be the introduction of housing vouchers for private rentals, as done for example in Belgium and Lithuania, while social housing is being expanded (OECD, 2023[68]). Any expansion of housing allowances should be coordinated with measures to boost housing supply, as poorly targeted subsidies in a tight housing market risk driving up house prices and rents, disproportionally benefitting landlords who capture a significant share of the subsidy through increased rents (Chapelle, Arumi and Gobbi, 2023[73]).
2022
Source: OECD Affordable Housing (database).
Authorities initiated several programmes to support vulnerable households struggling to pay housing costs. All housing allowance programmes are thereby aligned with other social benefits, and data on total income is cross-referenced via the Tax Authority and social security. Allocation of support is reassessed annually.
The Porta 65 – Youth Programme (P65) covers a share of the rent for up to 5 years, with support decreasing gradually over time. The programme is targeted towards young people, aged between 18 and 35 years old, whose monthly income is less than four times the national minimum wage (corresponding to EUR 3280 in 2024). Conditions apply, regarding for example the size and rent of the dwellings. In 2023, 28 133 young people received support.
The Porta 65+ Programme covers a share of the rent for up to 5 years, with support decreasing gradually over time. It is targeted to single-parent families or households who experienced an income reduction of more than 20% compared to the reference period, accounting also for income reductions due to changes in the household composition. The household income of applicants must be in the six lowest tax brackets (corresponding to up to EUR 41 629 annual income in 2024).
The Extraordinary rent support Programme (PAER) provides monthly financial support of up to EUR 200 to aid with rent payments. The programme is targeted to families whose previous rental contract had been terminated by the landlord, whose income is in the six lowest tax brackets (i.e. up to EUR 41 629 annual income in 2024), and whose rent payments account for at least 35% of disposable income. Support, which is paid automatically based on information from the Tax Authority, will be provided until end-2028. 236 862 families received support in 2023.
Source: (República Portuguesa, 2025[37]).
Portugal must significantly accelerate energy renovations to meet climate goals, cut emissions and improve housing quality, especially for the energy poor. Energy poverty is among the highest in the EU. While particularly affecting low-income households, energy poverty extends well into medium income groups (Figure 4.26). High energy poverty does not appear to reflect high energy costs. Rather, it can be explained by low housing quality and a lack of modern heating, ventilation and air conditioning systems in many buildings that prevents people from properly heating or cooling their homes (República Portuguesa, 2021[74]). Indeed, poor housing quality has been recognised to pose severe health risks to the population, notably during winter (República Portuguesa, 2021[74]). Meanwhile, prices for gas and electricity are similar or even lower compared to other EU countries, and households overall spend relatively little on heating and cooling their homes (Figure 4.26, Panel A, C and D). Meanwhile, energy demand for cooling – which currently accounts for about 1% of final energy consumption in housing in Portugal – is set to increase significantly with continued global warming (Chapter 3) (SATO, 2025[75]). By 2050, cooling may account for up to 9% of residential energy use in the EU on average, with likely much higher shares in Portugal (EEA, 2022[76]). Energy renovations can improve housing quality and upgrade heating and cooling systems, while helping to contain energy costs as emission pricing is extended to the housing sector (Chapter 3).
Share of households that cannot afford to keep dwelling adequately warm, by quintiles of disposable income distribution, %, 2022 or latest year available
Note: Data refer to 2021 for Switzerland, 2020 for Norway and 2018 for Iceland and the United Kingdom (no data available for the United Kingdom after 2018 due to data limitations). No data available for Australia, Canada, Chile, Colombia, Costa Rica, Israel, Japan, Korea, Mexico, New Zealand, Türkiye or the United States due to data limitations.
Source: OECD calculations based on European Survey on Income and Living Conditions (EU-SILC).
The current pace of renovations is too low to meet Portugal’s climate ambitions. Complying with the EU’s 2024 Energy Performance of Buildings Directive (EPBD) will require reductions in primary energy consumption in residential buildings from 2020 levels by 16% in 2030 and by 20% in 2035, mostly by improving the energy efficiency of the worst performing buildings (European Commission, 2025[77]). This requires raising the renovation rate from currently less than 2% to 3% of the floor area (República Portuguesa, 2025[37]). An even faster pace may be needed to reach 2050 targets. The 2021 Long-term Renovation Strategy aims to achieve a net zero building stock by 2050 (República Portuguesa, 2021[78]). Most buildings may need to be renovated to achieve this goal. According to the latest available data, 12.4% of dwellings that have been issued an energy performance certificate exhibited a high energy performance that would be consistent with a net zero building stock (República Portuguesa, 2021[74]; República Portuguesa, 2021[78]). Renovation needs may however be higher, as many older buildings have not been issued a certificate yet. Indeed, three quarters of buildings have been constructed before energy-efficiency standards were introduced in 1990 and are likely to have very low energy performance. Assuming that all buildings built before 2013 – when stringent energy efficiency standards were introduced – would need to be renovated implies an annual renovation rate of about 228 000 dwellings, or 3.8% of the building stock, from now until 2050 (República Portuguesa, 2021[78]).
Note: Panel A: Data for the Área Metropolitana de Lisboa, Alentejo and Centro refer to NUTS 2021 definition. Data for the autonomous regions of Madeira and Acores are missing. Panel B: Data refer to 2021 for Norway. Panel C: Data refer to 2019 for Slovenia. OECD is an unweighted average of the available countries, shown in the figure. Panel C & D: A selection of OECD countries is shown.
Source: Panel A: Eurostat; Panel B: OECD Annual National Accounts Database; Panel C & D: IEA (2021), Energy Efficiency Indicators Database; and IEA (2021), Emission Factors Database and OECD calculations.
Boosting renovations requires a comprehensive policy mix (D’Arcangelo et al., 2022[79]). Setting a clear and predictable regulatory path for renovations obligations in line with climate targets would give owners and contractors times to anticipate renovations. Expanding targeted financial support will be needed to address high upfront costs for renovations and enable lower-income households to meet renovation obligations. Finally, additional measures will be needed to address renovation obstacles for rented and multi-owner housing and overcome information gaps.
4.4.1. Setting out a clear and predictable regulatory path
The government is planning to raise awareness about renovation needs through a renovation passport. A renovation passport provides a tailored roadmap to significantly improve energy performance either at once, i.e. through a deep renovation, or in steps. Such information is important to complement energy performance certificates (EPC), which provide information about how energy-efficient a building is at present. In Portugal, EPCs need to be issued for all new buildings, as well as for existing buildings that are being sold or rented. EPC quality and roll-out – certificates issued until 2023 covered about 40% of the building stock – are more advanced than in most EU countries (Carvalho et al., 2024[80]). Introducing renovation passports is an effective way to build on this successful implementation of EPCs to trigger more deep and staged renovations while optimising energy savings (BPIE, 2023[81]).
However, even with renovation passports owners are still uncertain if and when dwellings must be renovated. Like most OECD countries, Portugal currently imposes no mandatory energy-efficiency minimum standards for existing residential buildings, while EPCs are mandatory for owner-occupied buildings only if they are sold or rented. Newly constructed buildings must meet stringent nearly-zero energy and zero emissions standards. Such standards can add up to 15% to construction costs, thus adding to the challenge to provide affordable housing (Republica Portuguesa, 2025[71]). To meet current ambitions for a net zero building stock, many dwellings will likely need to be renovated that will not be sold or rented. Aligning regulations with renovation needs to meet climate targets would give households and investors policy certainty. This could involve expanding requirements to have an EPC, so as to better identify and prioritise the worst-performing buildings; aligning recommendations on renovation passports with long-term targets, so as to inform households about which investments, if any, are needed; and setting out a timeline of minimum energy efficiency standards also for existing buildings to clarify by when those works need to be implemented (BPIE, 2023[81]). Portugal could follow other OECD countries in mandating renovations for the worst performing residential buildings when being sold or rented (Box 4.8). Given regional differences in heating needs (Figure 4.27, Panel A), regionally differentiated standards taking into account local and climatic conditions could help to prioritise renovations where the potential for energy savings and addressing energy poverty is highest (ESSC, 2022[82]).
Several OECD countries impose minimum energy performance standards (MEPS) for residential buildings – alongside requirements for public and commercial buildings – to increase renovation rates.
England and Wales (UK) require privately rented dwellings to achieve an Energy Performance Certificate (EPC) level of at least C by 2025 (scoring from A to G), and by 2035 for owner-occupied housing. EPCs are assessed when selling or rending a real estate, and enforcement is done by local authorities who can impose fines for non-compliance.
Scotland (UK) imposes similar MEPS but further differentiates deadlines for single- and mixed-use housing, requiring mixed-use housing to achieve ECP level C by 2045 (scoring from A to G), as opposed 2028 for private rented housing and 2033 for owner-occupied housing. Enforcement is again done by local authorities, while EPC standards need to be achieved when selling or renting the property, after major renovations, or when installing new heating systems.
France imposes MEPs for privately rented dwellings. Since 2023, only dwellings achieving an energy efficiency below 450 kWh/m2 are allowed to be rented. Enforcement is done through a cooperative approach involving local authorities as well as real estate professionals and energy companies, and fines for non-compliance may reach up to EUR 7 500.
Source: (ESSC, 2022[82]).
4.4.2. Expanding and targeting financial support
Financial support for renovations has been low. Lack of financing schemes to leverage private investment has been cited as a major impediment to boosting renovations (European Commission, 2023[83]). Current funding appears to fall short of high investment needs. For example, while the Recovery and Resilience Fund dedicates EUR 300 million to energy renovations for residential buildings, investment needs to fully transform Portugal’s building stock are estimated at EUR 4.95 billion per year (about 2% of GDP in 2024) (OECD, 2023[84]; European Commission, 2023[83]). Previous financial support programmes for renovations, such as the energy efficiency voucher programme (PAE+S), were targeted at low-income households, but covered only a small share of renovation costs, and take up was low (OECD, 2023[84]). Most financial support programmes ended in 2024 and the government is currently devising new programmes (República Portuguesa, 2025[37]). Portugal has a reduced VAT on housing maintenance. While this reduces renovations costs in general, targeting support towards energy renovations and low-income households would be more effective (Chapter 1).
Financial support should be significantly expanded, while part of the support should be targeted on deep renovations. Many older buildings may require comprehensive works – such as covering walls, roofs, floors, windows and heating systems. Deep renovations – i.e. achieving the highest energy-efficiency level at once or through a roadmap – are often more effective than a series of disconnected renovations that are more difficult to plan and make lock-ins more likely (BPIE, 2021[85]). Meanwhile, high upfront costs may deter many households from opting for comprehensive renovations. In Belgium, for example, cost estimates for deep renovations range from EUR 30 000 to EUR 75 000 for most buildings (Albrecht and Hamels, 2021[86]). Expanding loan support, while making the level of support conditional on energy savings achieved, would help to promote deeper renovations. However, with homeownership widespread also among low-income households – about 65% of households in the bottom income quintile were owner-occupiers in 2022 – many may struggle to repay subsidised loans over conventional periods. To be able to invest in deep renovations, such households may require financial support with sufficient grant components. Grant support be carefully designed to target low-income homeowners and avoid landlord capture. Landlord capture could occur for example if landlords were able to raise rents after subsidised energy renovations, thus offsetting some or all of the tenants’ gains from energy savings.
4.4.3. Addressing remaining renovation obstacles
Many homeowners or landlords may be unaware of financial benefit of renovations, available support programmes, or find renovations too difficult to plan. Lack of information may be a particular problem for older homeowners and in rural areas. Establishing one-stop-shops would make information more easily accessible and help streamline renovations. One-stop-shops can serve as a single point of contact to provide comprehensive services related to all aspects of energy renovations, e.g. from obtaining an EPC to planning renovations and obtaining financing to finding contractors (Iafsco, 2024[87]). They can be particularly suitable to reach low-income households. For example, Barcelona’s Energy Advice Points mobilised long-term unemployed to staff one-stop-shops which – in addition to providing information on energy renovations – also offer assistance for managing energy bills and reduce energy consumption (Ajuntament de Barcelona, 2025[88]).
Complementary measures could help address renovation obstacles for rented property and multi-owner buildings (ESSC, 2022[82]). Renovations can be more difficult to implement if the decision to renovate involves several owners – as with multi-owner buildings – or if those deciding and paying for the renovation differ from those benefitting through energy savings – as for rented property. Such split incentives are common. About 41% of dwellings were in multi-owner buildings in 2021 (OECD, 2023[89]), while about 22% of dwellings were rented (INE, 2024[16]). To facilitate decision-making among multi-owner buildings, Portugal could consider revising voting requirements. As in many OECD countries, Portugal requires a two-third majority among owners to agree on building works. Following Austria, which recently relaxed voting requirements from a two-thirds to a simple majority, could make it easier to find agreement (Hoeller et al., 2023[90]). Promoting loan support for on-bill financing schemes – where funds to invest in renovations are financed through future energy savings – may be particularly suited for multi-owner and rented properties as they reduce initial investment costs (Economidou, Todeschi and Bertoldi, 2019[91]).
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