Preparing for Demographic Change in the Azores, Portugal

1. Assessment and recommendations

The Azores, one of the two autonomous regions of Portugal alongside Madeira, is a remote archipelago of nine islands in the middle of the Atlantic Ocean. As an Outermost Region of the European Union (EU), the Azores faces distinctive challenges stemming from its insularity, geographic fragmentation and distance from continental Europe. With a population of approximately 240 000 that has declined by 2.7% from 2010 to 2023, the region is experiencing significant youth outmigration and ageing, exemplifying the demographic pressures that many peripheral territories across Europe and the OECD confront. These geographical constraints can accentuate the effects of demographic change, including long-term shrinking of the labour force, higher per capita costs for public services amidst declining fiscal revenues, and difficulties maintaining local infrastructure. Small market size and fragmented settlement patterns also limit the scalability of economic activity.

Despite these challenges, the Azores possesses remarkable assets, including its geostrategic location, UNESCO-recognised biosphere reserves and world heritage sites, a thriving tourism sector that has seen substantial growth, distinctive agri-food products, and significant potential in the blue economy and renewable energy sectors that can support quality jobs and retain and attract qualified talent. Strategic adaptation to demographic trends can transform potential vulnerabilities into strengths by developing tailored spatial planning approaches, establishing clearer multi-level governance arrangements, proactively managing fiscal pressures, and designing innovative service delivery models. Such an approach can better utilise the region's diverse assets to improve quality of life, provide good services and amenities, maintain an attractive built environment and create new economic opportunities. In this way, the region can better address the challenges it faces as an outermost region in retaining and attracting younger generations.

Regional profile and key trends

Outmigration and ageing are creating lasting demographic pressures

Overall population decline in the Azores has primarily been driven by outmigration. This demographic shift has been accompanied by ageing, with the population under 14 years decreasing by about a quarter while the population aged 65 and over increased by a third during the same period. Demographic trends are not even across the islands and municipalities. While many remote areas such as Nordeste or São Jorge island have lost significant population in recent years, some municipalities such as Madalena on Pico Island and Lagoa on São Miguel Island have in fact gained residents.

More recent data shows demographic stabilisation, with slight population growth since 2019, driven primarily by immigration that has offset increasingly negative natural change. This can be attributed, in part, to growing tourism and COVID-19 effects. Such trends are likely to be temporary, with future Eurostat projections indicating the region will lose about a sixth of its population by 2060, driven by accentuated negative natural change. The working-age population could also shrink by about a third, while the elderly population is projected to increase by 76%, creating significant challenges for labour markets and health services.

The economy relies heavily on primary sectors, public administration and increasingly tourism, with a labour market vulnerable to demographic shifts

Agriculture, forestry and fishing contribute about 6% of regional Gross Value Added (GVA) and the public sector accounts for nearly a third—the highest share nationwide. Tourism has emerged as a critical economic driver following airspace liberalisation in 2015, capitalising on the islands’ rich nature, biodiversity and cultural heritage. However, GDP per capita remains about a tenth below the national average and a third below the EU average.

The proportion of employed in the working-age population increased from just over half in 1995 to slightly more than two-thirds in 2024, according to EU Labour Force Survey data. Outmigration has primarily affected the unemployed and economically inactive. Young workers are increasingly concentrated in high-skill occupations, with about a third of workers aged 20-39 in high-skilled roles compared to just over a quarter of those aged 40-59. However, they are notably underrepresented in agricultural, trade work and industrial occupations. The projected decline in working-age population by 2060 threatens to create severe labour and skill shortages, particularly in sectors with ageing workforces that struggle to attract younger workers, such as agriculture and public administration.

Youth outmigration challenges the region’s talent base and long-term regional attractiveness

Youth outmigration has been a persistent challenge, with young adults aged 15 to 39 having left the region at more than three times the rate of the general population since 2010. While the Azores has seen recent demographic stabilisation, it is still classified by the European Commission as being at risk of falling into a "talent development trap", where demographic decline is compounded by the loss of talented and educated individuals. This phenomenon particularly affects young people of family-starting age, who are essential for maintaining regional attractiveness and adapting to changing demographic and socioeconomic pressures.

The consequences of this talent drain are becoming increasingly visible in the labour market structure. The ratio of young workers to late-career workers has fallen from 12 young workers per 10 late-career workers in 2011 to 8 per 10 in 2022. Young workers tend to leave the region regardless of whether they are employed, unemployed or out of the workforce. This shift likely reflects not only demographic pressures but also a mismatch between the skills of an increasingly educated youth population and the opportunities available in the regional economy. This also reflects constraints that affect quality of life, including transportation constraints within and between islands and between the Azores and the mainland, and intermittent digital connectivity on some islands. The region continues to struggle with retaining young talent, particularly in rural areas where opportunities for skilled individuals remain severely limited.

A distinct multi-level governance structure gives the regional government more responsibilities than regions on the mainland

The Azores operates in a distinctive multi-level governance structure as an Autonomous Region with its own government and legislative assembly. While Portugal remains one of the most centralised OECD countries in terms of subnational government spending and revenue, the Azores has more fiscal autonomy than regions on the mainland. It has significant responsibilities for key services affected by demographic change, particularly healthcare, education and transport. The region's 19 municipalities and 155 parishes also enjoy a special status, though their fiscal framework largely relies on the central government. Ongoing national processes to decentralise powers and resources to municipalities are reshaping the balance of responsibilities across levels of government, although it is unclear when these processes will enter into force.

Despite lacking an overarching strategy to address demographic change, the Azores implements numerous policies to attract and retain residents. This includes fiscal incentives, social support for vulnerable groups and targeted investment in key economic sectors. In particular, the various levels of government (regional and local) use a large array of preferential tax rates, financial incentives for families with newborns and programmes to attract young talent. However, these policies come at a significant budgetary cost, estimated to be equivalent to 15% of total regional government revenue in 2023. Maintaining these initiatives will require ensuring that they achieve their desired policy outcomes while avoiding competition between initiatives at municipal, regional and national levels.

Adapting land use and spatial planning in the Azores

Modernise spatial planning to align with demographic realities and preserve the uniqueness and heritage of the Azores landscape

Land available for development is scarce in the Azores due to the archipelago's volcanic topography and vast natural reserves. However, current land use patterns leave room for further optimisation. The peripheries of the major urban centres of Ponta Delgada, Angra do Heroísmo and Horta are expanding even as overall populations declined in these cities, mainly due to rising housing prices in central areas and misalignment between demographic trends and development patterns. This is despite only 65% of land being occupied even in the most central areas within Ponta Delgada, the largest city in the region. Scattered development along the coastline continues, affecting marine ecosystems and sensitive endemic species habitats. Such patterns threaten natural landscapes vital for maintaining the region’s unique identity, while fragmenting agricultural lands crucial to the region's economy and heritage. The resulting settlements also tend to be difficult to service, connect and provide infrastructure for, which directly influences quality of life and amenities that are essential for retaining and attracting residents.

The 2014/2015 national planning reform introduced major changes, including restrictions on earmarking land (solo urbanizável) for future development, creating provisions to revert undeveloped urban land back to rural and requiring municipalities to demonstrate the economic and financial feasibility of land use decisions in advance. Although the Azores holds legislative competence over spatial planning, the principles and objectives of national laws, including those pertaining to the 2014/2015 planning reform, must be observed. As such, the Azorean government has progressively aligned its regional legislation with the recent reforms. However, the regional spatial plan (PROT-A) from 2010 predates these reforms, lacking a demographic strategy and struggling to properly address current demographic trends and economic developments, particularly the substantial growth of tourism. Municipal plans (PDMs) also tend to be outdated, with many municipalities still operating under the outdated planning regime, resulting in inefficient and incoherent land use. Some key policy avenues are as follows:

• Modernise the regional spatial plan (PROT-A) to incorporate contemporary planning paradigms exhibited in recent national reforms. The regional government has already initiated this process, with the decision taken in April 2025 to revise PROT-A through a collective process involving several departments and external entities. This revision should ideally include a strong emphasis on land use policies that are aligned with demographic projections, and which preserve the Azores’ unique natural landscape and cultural heritage. It should also align with strategic priorities at the EU level, as evidenced in the proposed mid-term review of Cohesion Policy for the 2021-2027 period which emphasises the importance of streamlined permitting and land use decision making. Given that territorial management represents a shared competence involving multiple government departments, the revision process should ensure appropriate inter-departmental coordination to develop a spatial plan with demographically justified urban perimeters, housing development zones, public service optimisation areas and designated tourism zones. The regional spatial plan should be part of an overarching demographic strategy that includes strategic plans at the regional level.

• Update municipal spatial plans (PDMs) with population-based development parameters by requiring municipalities to establish clear planning guidelines for changes to built-up areas that are calibrated to demographic forecasts. PDMs for major urban centres such as Ponta Delgada should designate priority densification corridors in central areas, together with provisions for social and affordable housing and amplified service delivery and infrastructure to mitigate gentrification and the potential negative consequences of increased density. PDMs for smaller, more remote municipalities should identify areas for management of decline that include plans for managing vacant properties through repurposing, reuse and demolition. Historic preservation districts could be designated in areas with valuable architecture and heritage to maintain and capitalise on the region’s unique cultural assets. This process should be supported by defining Municipal Housing Charters, in alignment with national frameworks (Lei 83/2019) that address both growing and declining population scenarios through systematic mapping of housing needs, inventories of vacant dwellings, and targets for affordable housing provision in growth areas and vacancy management and adaptive reuse in declining areas. Implementation would require establishing standardised demographic projection methodologies, providing technical assistance to municipalities and developing model PDM templates. These efforts should be undertaken under robust participatory processes that involve all relevant stakeholders.

• Enable strategic demolition and renovation of vacant and dilapidated properties through dedicated regional or national programmes providing administrative and financial support to municipalities for acquisition, demolition, renovation and management of vacant properties. PDMs and Municipal Housing Charters should align with these programmes to designate areas and properties eligible for repurposing and demolition. Support should operate on a cost-sharing basis with higher contributions in smaller, remote municipalities. Implementation must prioritise solutions agreed upon with property owners and local communities, with expropriation reserved only for exceptional situations involving properties that pose serious safety hazards or significantly impair neighbourhood quality, ensuring proper justification and full protection of citizens' rights and guarantees. Streamlined procedures should focus primarily on collaborative approaches and voluntary agreements before considering compulsory measures. In the short to medium term, Cohesion Policy investments could be utilised to repurpose vacant properties and land towards more relevant uses, such as public service centres and social and affordable housing, in line with specific objectives (for example found in Article 3 of EU Regulation 2021/1058 and Article 4 of EU Regulation 2021/1057) and respective funding allocations provisioned in the Azores Regional Programme for 2021-2027.

Support smart densification in high-demand areas to improve housing affordability, enhance sustainability and efficiently deliver services

Rising housing prices, especially in high-demand urban areas, are creating affordability pressures that particularly affect young professionals and families, contributing to displacement and youth outmigration while undermining the region's long-term attractiveness. Scattered development and lower densities in urban areas exacerbate these affordability challenges by limiting housing supply in the most desirable locations and increasing per capita infrastructure and service costs. Only 65% of land is occupied even in the urban centre of Ponta Delgada, the region’s largest city. At the same time, many developed properties remain vacant even in some high demand areas. Growing tourism demand is also placing increased pressure on housing markets and existing infrastructure while generating significant property value uplifts.

Smart densification can address these challenges by increasing housing supply in high-demand areas, preventing gentrification through expanded housing options and enabling more efficient provision of public services and infrastructure. When combined with provisions for social and affordable housing, strategic densification can better ensure that housing remains accessible across income levels. This approach can also preserve the Azores' unique and environmentally valuable natural landscapes by concentrating development in already urbanised areas. When aligned with the New European Bauhaus principles, smart densification can also create attractive, sustainable and inclusive spaces that appeal to the educated, mobile workforce essential for escaping the talent development trap. With developable land scarce, efficient spatial development in the Azores is essential for maintaining housing affordability, ensuring efficient public service delivery and preserving the distinctive landscapes that form the region's identity. Key policy avenues are as follows:

• Incentivise urban regeneration through strategic density bonuses and regulatory flexibility by establishing a tiered system of incentives in the form of additional building rights linked to the inclusion of permanent residential units alongside tourism accommodation, formalising priority regeneration zones within urban centres, and implementing streamlined permitting procedures for housing rehabilitation projects. The substantial Cohesion policy funding for SMEs allocated in the Azores Regional Programme could be prioritised for businesses locating in designated regeneration zones, creating innovation districts where enterprises receive more Cohesion policy support contingent on developing mixed-use properties with affordable housing units above commercial spaces. To ensure effectiveness, the regional government could establish dedicated management units supporting urban regeneration efforts, guidelines to standardise approval processes across municipalities, and develop long-term funding commitments that provide certainty for private sector investment in regeneration projects.

• Retool land and property taxes to address land underutilisation. A land value tax or split-rate property tax based on development potential rather than current use could be introduced for undeveloped plots within major urban areas and high-demand areas to deter vacancies. To avoid increasing the overall tax burden, complimentary tax reductions and exemptions could be provided for properties undergoing renovation or renewal to incentivise densification. Revenues could be utilised for improving urban infrastructure, public services and social and affordable housing provision to support the higher densities being encouraged. Given the sensitive nature of such measures, implementation should be accompanied by clear communication strategies, comprehensive impact studies and phased implementation through pilot projects.

• Actively implement LVC instruments to capitalise on property value uplifts generated by tourism demand, especially in areas such as Ponta Delgada, Angra do Heroísmo and Pico island. Municipalities facing heavy tourism demand should utilise LVC instruments including developer obligations for new developments, with fees or in-kind contributions proportional to the additional burden placed on infrastructure and services. Proceeds should be used to fund additional infrastructure, services and housing. Successful implementation would benefit from pilot programmes in selected high-tourism municipalities and stakeholder engagement processes to build understanding of the benefits these instruments can deliver for local communities. To address administrative capacity constraints, the regional government could establish a central technical unit to support LVC implementation by providing training, standardised methodologies and legal assistance to municipalities implementing these instruments.

• Levy charges for development rights to divert development away from urban peripheries and coastlines towards urban centres. To avoid increased burden, these charges should be implemented as part of a differentiated system where higher fees in urban peripheries and coastal areas are balanced by reduced charges and incentives in designated urban densification zones. Land readjustment could be used in areas such as São Jorge island and Nordeste with high vacancies to consolidate land plots. To build industry support, the regional government could engage early with real estate stakeholders to demonstrate how concentrated development can reduce infrastructure costs and create more attractive, higher-value urban environments that benefit both developers and communities.

Match housing supply with demand to help retain young people and manage tourism pressures

New housing construction remains concentrated in main urban centres and their vicinity, despite population decline and significant housing vacancies in these areas. This pattern may reflect a combination of factors, including potential oversupply where demand is stagnating, and a mismatch in the type of housing being built and what is demanded in the market, leading to an exodus of population, particularly young families. Conversely, areas experiencing population growth and tourism pressure, such as Madalena on Pico Island, have seen comparatively less construction in absolute terms, given rising demand and significant increases in housing prices. This spatial misalignment is compounded by limited social housing, which represents just 2.3% of the total housing stock regionwide and less than 0.5% on islands such as Pico and São Jorge, even as real estate prices in these areas have risen substantially.

Tourism growth has intensified housing market pressures, with housing prices increasing more in municipalities with a higher share of seasonal dwellings. This trend mirrors broader EU challenges recognised in the Cohesion policy mid-term review, which has proposed several measures to address affordable housing concerns. High housing costs can also create challenges for regional competitiveness, as companies in affected areas struggle to attract workers due to unaffordable living costs. This trend is particularly concerning in the Azores as it runs parallel to high vacancy rates, with more than 20% of total housing stock sitting vacant in more remote areas of the region.

The combination of tourism-oriented housing development, high vacancy rates, and an ageing housing inventory creates conditions that challenge the region's ability to retain and attract young residents in need of affordable housing close to work opportunities. This housing crisis directly threatens demographic sustainability by preventing young people from settling down and starting families. For island territories like the Azores, which face inherent challenges of remoteness and higher living costs, the housing shortage becomes a critical barrier to maintaining viable communities and ensuring that residents can stay in their home territories. Some key policy avenues are as follows:

• Evaluate housing construction permit approvals based on demographic projections contained in spatial plans. Housing needs should be clearly outlined in the PDM, based on realistic population projections and guidelines provided in national and regional spatial plans. Municipalities, when evaluating permits, should require developers to demonstrate alignment with population and housing needs, favouring infill and brownfield development within the existing urban fabric. To facilitate acceptance, the regional government could provide standardised assessment frameworks, transparent criteria for permit evaluation, and regular stakeholder consultations to ensure that demographic-based planning supports rather than hinders appropriate development, especially in high-demand areas.

• Boost provision of affordable and social housing by establishing a dedicated regional acquisition fund for affordable and social housing financed through LVC instruments and aligned with EU Cohesion policy priorities. In the short term, the fund could leverage the strategic focus of the Cohesion Policy mid-term review on affordable housing, which proposes favourable financing terms and new, joint financial instruments with the European Investment Bank. Contributions obtained through developer obligations and other LVC instruments should be directed towards affordable and social housing especially for young professionals and graduates, whether through in-kind or monetary contributions. Contributions to affordable and social housing through LVC instruments should be mandated for all tourism development to ensure tourism growth directly supports the creation of communities where young residents can afford to live and work. Vacant and refurbished properties created through demolition and renovation programmes could likewise be utilised for affordable and social housing purposes, particularly targeting young couples and families, consistent with New European Bauhaus design principles to ensure sustainability and social inclusion.

• Strengthen the construction workforce and develop local workforce capacity by supporting the development of training and apprenticeship programmes that develop specialised skills and attract young people from within and outside the region into the construction workforce. The regional government could utilise Cohesion Policy funds to support the development of such programmes and co-finance incentive packages for trainees, including for employer-provided housing and other social assistance. To balance the high costs of construction especially in remote areas, these incentives could be differentiated so that greater incentives are provided for remote municipalities and islands.

Promote intermunicipal spatial planning to optimise service provision and resource allocation

While the 2014/2015 national planning reform allowed municipalities to jointly promote supra-municipal spatial programmes or plans, no intermunicipal spatial plan has reached advanced stages in the Azores or Portugal, despite demographic challenges that demand coordinated planning responses. Especially for the islands that have more than 1 municipality, intermunicipal spatial planning could enable efficient resource allocation, preserve service accessibility for residents and address other spatial disparities that undermine the region's capacity to retain and attract talent. Coordinated planning is essential for escaping the talent development trap by ensuring critical mass for higher-order services, cultural amenities, and transport networks that young professionals require, while maximising the impact of Cohesion policy investments through shared infrastructure and joint service delivery that individual municipalities cannot sustain alone. A key policy avenue is as follows:

• Establish a regional support programme for intermunicipal spatial planning led by the Regional Directorate for Forest Resources and Land Management that provides capacity building, technical expertise, legal guidance, and mediation support. The programme could begin with pilot projects that showcase tangible benefits, such as cost savings from shared infrastructure or improved service delivery, before expanding to broader regional initiatives. Performance-based bonuses, including potential grants funded through Cohesion Policy funds, could be provided to further incentivise successful implementation of intermunicipal spatial plans. This could include priority funding towards projects that emerge from intermunicipal spatial planning processes, such as joint infrastructure investments or joint service provision centres that serve intermunicipal catchment areas. Intermunicipal spatial plans should ideally be developed within existing coordination frameworks such as island councils and, once enacted, could replace individual municipal PDMs as opposed to adding another statutory planning layer. In addition, legal frameworks should be clarified to ensure that intermunicipal arrangements protect municipal autonomy while enabling effective collaboration, with transparent benefit-sharing mechanisms that demonstrate how participating municipalities gain from partnerships.

Adapting multi-level governance and subnational finance in the Azores

Reinforce strategic planning to strengthen regional resilience against demographic pressures

The Azores' approach to demographic change focuses on incentives to attract residents and businesses, yet lacks comprehensive and cross-sectorial integration that considers how demographic change will affect all dimensions of the region's economy, environment and society. The absence of island-scale strategies further complicates matters, as does the limited availability of demographic projections for regional planning and investment decisions, including on youth and talent outmigration at the local level.

As in many OECD regions, policies, strategies and plans are often prepared and implemented in silos across departments and in parallel at the national, regional and municipal levels, potentially introducing inconsistencies. This fragmented approach risks inefficient allocation of resources and their cross-purpose use, which may lower overall effectiveness of policies and widen demographic disparities. The lack of a comprehensive approach can also risk exacerbating the talent development trap as insufficient coordination and foresight may limit the region’s ability to develop and capitalise on young people’s education and training to address the talent development trap in the region. Some key policy avenues to address this are as follows:

• Strengthen regional and municipal statistics to ensure policies, strategies and plans are informed by accurate and regularly updated data, including municipal-level demographic projections, and indicators on service accessibility and quality. The strengthening of a platform within the Azores Statistical Office (SREA), in collaboration with the National Statistics Office (INE), could help to further improve consistency and dissemination of relevant statistics, enabling for instance to track population dynamics over time, using annual resident population estimates by municipality. Data on the geographic allocation of public investment in the Regional Annual Plan could also be systematically broken down by municipality. This would require boosting in-house capacity (both personnel and technical infrastructure) to collect and administer these data. The strategic use of EU Cohesion Policy funds allocated for Technical Assistance could help strengthening subnational statistical and analytical capacity and improving digital infrastructure at the municipal level.

• Integrate demographic projections in regional strategic documents to ensure policies and investment decisions align with long-term demand. This means incorporating mid to long term population forecasts, including on youth and talent outmigration, in key strategic documents, such as the Regional Annual Plan, the Azores Regional Operational Programme and Spatial Planning Strategy. These strategic documents can then inform sectoral documents such as statutory regional and municipal spatial plans, as well as fiscal incentives strategies. Demographic projections could also be incorporated in appraisal documents to align investment prioritisation with demand.

• Establish an overarching framework for adapting to demographic change to provide a common vision for the regional government and other subnational governments. Such a framework can help align regional and municipal efforts and foster consistency across sectoral strategies. It could take the form of a high-level format document or be enshrined in legislation by the Azores Legislative Assembly, ensuring stronger institutional commitment and continuity, similar to the approach taken in Castilla-La Mancha, Spain. The implementation of the framework could be supported by existing regional monitoring tools, such as the Azores Sustainability Charter.

• Ensure inclusive, multi-level stakeholder engagement in the design and implementation of the regional framework for addressing demographic change. The regional framework should be co-developed with the active involvement of regional stakeholders, including all relevant departments within the regional administration, municipal and parish governments as well as members of island councils, representatives from CESA and Youth Councils. The framework monitoring tools could also be effectively disseminated across levels of government and sectors, to enable consistent tracking and accountability of progress on demographic adaptation and mitigation objectives.

Strengthen regional and municipal finances to improve fiscal sustainability and support effective investment

Ageing and population decline risks reducing regional government revenue, while increasing expenditure, particularly in healthcare. Regional government expenditure already reached a quarter of regional GDP in 2023, at EUR 1.3 billion. Healthcare spending in particular increased from 6% of regional GDP in 2010 to 8% in 2023, with projections indicating an additional 4 percentage point increase by 2050. Expenditure pressures are magnified by the region’s geographic fragmentation. Smaller municipalities, especially in remote areas, have higher per capita capital expenditure, reaching EUR 1 140 per capita in Corvo, compared to EUR 137 in Ponta Delgada in 2022. These smaller municipalities also collect limited tax revenue, especially from property taxes which account for only 1% of municipal revenue in certain instances, making them highly reliant on transfers.

Despite the regional government's fiscal autonomy, revenue mobilisation is relatively limited and there is a reliance on national government transfers for financing health and education services. Revenue is further limited by regional and municipal governments' tendency to rely on fiscal incentives and tax breaks to attract residents and investment. There is also a disconnect between the regional government and the municipal fiscal framework, overseen by the national government, which makes tax policies hard to monitor and makes financial management more complex.

The Azores is a prime beneficiary of EU funds, both Cohesion Funds and competitive funds, which has helped build administrative capacity within the Regional Government. Nevertheless, insufficient stakeholder engagement and municipal government capacity, especially in smaller islands, can hinder investment planning and implementation. EU-funded projects approved as of 2025 highlight potential gaps in investment priorities. Half of approved projects are related to SME competitiveness, education and training, key areas for boosting economic resilience and the region’s attractiveness, and most projects are concentrated in the most populated islands. By contrast, less than 4% of approved projects target climate change adaptation, culture, or tourism, despite the potential of these sectors to support sustainable development and contribute to youth retention. Some key policy avenues are as follows:

• Review and publish tax incentives to maximise their effectiveness and limit overlaps across government levels, by mapping the full set of fiscal incentives currently in place at the central, regional and municipal levels. This process should be transparent and participatory, gathering data on incentives from government and business stakeholders, conducting a comprehensive assessment of their performance in meeting regional development goals, including demographic sustainability, and providing an analysis of their fiscal opportunity costs.

• Strengthen and diversify regional own-source revenues by implementing fiscal tools that tap onto demographic opportunities such as eco-cruise taxes, other tourism-related charges and land-value capture mechanisms. This would reinforce the autonomous region’s fiscal effort, balance the reliance on transfers and help achieve policy objectives related to demographic change. The region's fiscal powers could ideally be used to influence distributional and environmental outcomes linked to demographic change.

• Ensure stable and predictable domestic financial transfers to autonomous regions in any revision of the Autonomous Region’s Finance Law, to support efficient allocation of the Azores’ regional revenue in key sectors such as health and education. This could include reviewing the formula for the allocation of transfers to better cover extra costs related to population shrinkage and insularity.

• Control growth in regional expenditure by supporting consolidated and digitalised service delivery models (especially in remote areas), repurposing infrastructure, and promoting long-term policies that prevent wasteful spending, such as preventive public health programs focused on healthy ageing as part of the Regional Health Plan.

• Enhance municipal own-source revenue from property taxes by conducting GIS-based audits to identify unregistered or undervalued buildings, supporting regular property valuations, and improving the identification of vacant or abandoned properties. Municipalities may consider gradually applying differentiated municipal property tax (IMI) rates to encourage better land use, and offering multilingual services or online payment tools to facilitate tax compliance by non-resident property owners. To support these efforts, the regional government could work with the national government and associations of municipalities to ensure equitable access to relevant data, provide training and technical assistance on GIS tools and digital tax administration and promote inter-municipal cooperation to share costs and expertise.

• Build capacity at the regional and municipal level for efficient service provision and investment implementation through streamlined administrative processes. The regional and central governments could design targeted capacity building programmes, in partnership with the national and regional associations of municipalities and parishes, and ensure the early engagement of municipalities and parishes in the development of investment projects. This could strengthen the capacity of the regional administration to coordinate the various European and national funds, by leveraging EU funds for Technical Assistance, and to conduct regular reviews of priorities. This skill enhancement could contribute to making the public sector more attractive — particularly to the youth — and ensure a steady pipeline of skilled professionals.

Review multi-level governance structures to encourage coordination and ensure service efficiency

Portugal's asymmetrical decentralisation structure and the realities of autonomous regions can create confusion regarding responsibilities across regional, municipal and sub-municipal levels in the Azores, particularly in the transport, land-use and housing sectors which involve decision-making and investment across government levels. This is compounded by the lack of substantive and formal powers of existing vertical coordination bodies (e.g. island councils) and stakeholder engagement platforms such as the Economic and Social Council (CESA). Existing investment frameworks also suffer from the lack of coordination mechanisms, potentially leading to misalignment in infrastructure development and unequal recourse to contractual arrangements between the autonomous region and municipalities (Administração Regional Autónoma e Administração Local, ARAAL contracts).

While Azorean municipalities are relatively large by European standards, their geographic dispersion across nine islands creates unique governance and financial hurdles. Most municipalities have low own-source revenues and fiscal autonomy, which hinders the efficiency of service and infrastructure provision, straining municipalities that are the most remote and with declining populations. Horizontal cooperation remains limited, with a few intermunicipal initiatives, focused primarily on waste management and environmental services and EU Integrated Territorial Investments (ITIs) in the marine economy. The limited cooperation is further hindered by a culture of competitiveness between municipalities, driven by competition for EU and national funds. Some key policy avenues are as follows:

• Promote voluntary cooperation between municipalities and parishes via flexible contractual arrangements, to help improve the quality and efficiency of public services and investment in the Azores, particularly in areas such as education, tourism, transport and planning, where economies of scale and coordinated action are beneficial. The regional government could promote and scale up the use of ARAAL contracts by providing clear incentives for inter-jurisdiction collaboration, in accordance with local specificities and within the framework of local autonomy. The regional government could extend its digital governance tools across municipalities and parishes to enhance communication and collaboration for IT and other support functions. Integrated Territorial Investments (ITIs) under EU Cohesion Policy could also provide a complementary mechanism to co-finance cooperative initiatives and structure them to make them long-lasting.

• Clarify competences in the transportation sector, to ensure the effective allocation of responsibilities and functions between the regional, municipal and parish levels, which is critical given transportation's significant share of regional expenditures and its vital role for regional attractiveness. The regional government could undertake a more strategic role in the definition and overseeing of the transportation strategy, to promote a more integrated transportation system, incorporating maritime and land transport services and infrastructures. This would enable the region to work more effectively with municipalities and parishes to improve intra-island transport and mobility.

• Review and formalise the role of island councils and other vertical and horizontal coordination bodies, to support more effective multilevel dialogue and balanced territorial development. Beyond their current consultative function, island councils could serve to actively involve regional, municipal, and parish levels in the co-production of the Regional Annual Plan and Medium-Term Guidelines. Enhancing the institutional recognition and capacity of island councils could enable the region to promote more inclusive, place-based policy approaches and better balance investment priorities between urban and non-urban areas. At the same time, clarifying the roles of the Economic and Social Council and the Azorean Diaspora Council could facilitate and institutionalise stakeholder engagement. This would create more structured opportunities for dialogue with the private sector and civil society, including youth representatives. Enhancing communication channels and encouraging meaningful representation of residents from each island, including the youth (as within executive boards or diaspora councillors), could strengthen the legitimacy and responsiveness of regional policies.

Adapting service provision and accessibility in the Azores

Streamline transportation and improve connectivity to promote regional integration and economic sustainability

The Azores faces unique transport challenges due to its geographic fragmentation across nine islands. While air transport has grown substantially since the 2015 airspace liberalisation, public transport within islands remains underdeveloped, with only 11.5% of workers using public transport compared to 71% relying on private vehicles. Public transport use is low even in Ponta Delgada, when compared to Portuguese municipalities with similar densities. This creates accessibility barriers for vulnerable populations, particularly the youth who often lacks access to private cars, and contributes significantly to the region's greenhouse gas emissions and energy use. The limited availability of public transport poses challenges for meeting EU and Cohesion Policy objectives related to greener mobility and improved regional connectivity. Nonetheless, the dispersed nature of settlement across nine islands and the region’s inherent remoteness means that public transport options may not always be viable or cost-effective.

The financial burden of transportation is intensifying, with regional budget allocation more than doubling since 2001, primarily supporting air transport subsidies. This pressure will likely increase as ageing populations require more accessible options and population decline reduces service viability in remote areas. Poor integration between transport modes and uneven digital connectivity further compounds these challenges. Improving transport connections and integration could help boost regional attractiveness and address the talent development trap. Transport policy must balance efficiency objectives with the need to maintain essential connectivity for remote communities, ensuring that streamlining efforts do not compromise accessibility for residents in peripheral areas who depend on these services to remain in their communities. Some key policy avenues are as follows:

• Optimise transportation networks by adjusting public transport schedules and routes based on seasonal demand, aligning timetables across buses, ferries and other modes of transport, increasing the frequency of buses between key transport hubs – such as ports and airports – and major settlements on each island (e.g. between São Jorge airport and the villages of Velas and Calheta), and incorporating population statistics into public transportation planning to ensure efficient service delivery. These types of improvements are well aligned with the priorities of the Azores regional programme for 2021–2027, which allocates a significant portion of funds to the development and strengthening of sustainable and intermodal mobility.

• Enhance connectivity in remote areas and on smaller islands by utilising the region’s strengths in digital connectivity and extensive digital infrastructure to provide adaptive mobility solutions such as on-demand transport services (e.g. taxis or small shuttles) and carpooling initiatives, with prioritised access for vulnerable groups to essential services. The Azores regional programme for 2021-2027 also allocates a significant share of EU funds to access to services, healthcare and education, resources that could be leveraged to support such initiatives. Smart transport services have been proven to be effective even in rural and remote settings, such as in the case of Ireland’s Local Link Rural Transport Programme, but will require support from the regional and national government to implement, especially in covering operating costs.

• Reallocate transport subsidies to better balance air and maritime transport based on geographical realities and seasonal conditions. Maritime transport subsidies should be enhanced for short inter-island connections where feasible, such as between closely situated islands like Pico and Faial, while maintaining necessary air transport support for longer distances and during periods of challenging sea conditions. Clean mobility should be promoted by investing in cycling infrastructure, expanding access to electric vehicles, and building new renewable energy production assets. Additionally, support should be provided for cleaner, more efficient ferry services to reduce the environmental impact of necessary inter-island transport while maintaining essential connectivity across the archipelago.

• Leverage the region’s unique renewable potential, in particular geothermal, tidal and wind power, to produce clean electricity and, where relevant, green hydrogen, fostering a more self-sufficient and resilient energy system that can also support high-skilled job creation and help retain and attract qualified talent in emerging green economy sectors. While the applications of hydrogen can be complex, it may offer strategic value as a transportation fuel, as backup energy storage or for the production of low-carbon fertilisers in the region. Developing the region's renewable energy capacity alongside its blue economy potential can create employment opportunities in technical, engineering and research roles that appeal to educated young professionals. Energy, Climate Action and Sustainability are key priorities in the Azores regional programme for 2021-2027, although most of these funds are currently allocated to climate change adaptation, disaster risk prevention, resilience, as well as promoting access to water and sustainable water management. Only a small share is allocated to promoting renewable energy. Current funds should be actively used to accelerate the deployment of clean energy infrastructure and technologies, while the Cohesion Policy mid-term review, which reinforces the importance of the energy transition, decarbonisation, renewable energy and hydrogen production, offers a timely opportunity to reallocate or increase this funding.

Optimise service networks and accessibility to strengthen resilience and ensure equitable service provision

The decrease in the young population together with the increase of the old-age population has created an imbalance in service demand. Educational facilities are underutilised, especially in municipalities with decreasing populations and student numbers, while healthcare facilities face mounting pressure from increased chronic disease prevalence and higher hospital bed occupancy.

Geographic fragmentation exacerbates these challenges, with critical services unevenly distributed across islands. Only three islands have hospitals, requiring complex and costly inter-island transfers for specialised care, while smaller islands lack certain childcare facilities and educational options. Despite relatively good accessibility within islands, the uneven distribution of specialised services creates significant barriers for residents of smaller islands. These challenges are compounded by difficulties in attracting and retaining qualified service professionals. Ensuring access to education and healthcare services are essential for the regional attractiveness of the Azores and for retaining and attracting the youth population. Some key policy avenues are as follows:

• Better tailor service networks to future needs based on demographic projections to guide regular updates and restructuring of education and healthcare services. This involves expanding schools to accommodate multiple educational levels or merging underutilised schools in municipalities experiencing population decline to enhance resource efficiency, while ensuring that consolidated facilities remain accessible and that mobile or outreach services fill any gaps in coverage. Similarly, healthcare services should be regularly adapted to meet rising demand for specialised care, especially in areas with a high share of old-age residents and in those ageing the most rapidly, ensuring a balanced and sustainable allocation of resources across the region while maintaining local primary care access and developing telemedicine capabilities to preserve service availability in remote areas. Implementation of service network restructuring must be conducted together with comprehensive public consultation processes.

• Further expand service accessibility through digital solutions by building upon previous advancements, such as digital health records and telemedicine consultations. The Azores is allocating a large share of EU funds to fostering the resilience of the health systems and ensuring equal access to healthcare and to quality services in education and training. To maximise the impact of this investment, the region could further expand telemedicine offers where needed, especially on the smaller islands and in rural areas. Additionally, integrating digital health solutions like wearables and remote monitoring systems can enhance chronic disease management, reducing pressure on in-person healthcare services. Furthermore, the development of online platforms for upskilling and lifelong learning should be expanded, ensuring that workers have continuous access to online trainings.

• Promote integrated service delivery through multi-level service centres by explicitly incorporating these facilities within the regional spatial plan (PROT-A) and establishing a clearly defined spatial hierarchy of service provision. The regional spatial plan should delineate a tiered system of service nodes based on population distribution and accessibility, including a mapping of locations with information concerning service categories and projected capacities. This approach should be complemented by explicit cost-sharing principles between municipalities that account for population served, geographical distance, municipal fiscal capacity and utilisation rates. To overcome sectoral resistance and ensure effective coordination, implementation should include pilot projects that demonstrate concrete benefits, inter-departmental working groups to align sectoral interests, and clear governance frameworks that preserve service quality while improving efficiency and accessibility across the region.

Retain and attract skilled labour and develop the skills of the workforce to enhance regional competitiveness

The region experiences difficulties in attracting and retaining qualified professionals in healthcare, education, and other specialised fields, especially in remote areas and smaller islands. This is particularly concerning for healthcare services, where the Azores records fewer general practitioners, specialists, dentists, and pharmacists per inhabitant than mainland Portugal, despite facing increased demand from ageing and a rising prevalence of chronic conditions.

The region records a high share of under-educated people. Tertiary education attainment is half that of the Lisbon metropolitan area, while early school leaving stands at close to three times the national average. These educational gaps add to the misalignment between employers' needs and available skills, particularly in sectors such as tourism, information technology, education, and healthcare, hampering the region's economic development and resilience. Some key policy avenues are as follows:

• Attract and retain skilled labour by implementing a more coherent and targeted incentive system that builds on and streamlines existing financial incentive initiatives at different governance levels - such as the regional financial incentives provided to teachers serving on smaller islands or the municipal property transfer tax exemption for young residents in Faial - especially for teachers and healthcare workers serving in underserved areas. This includes integrating financial incentives with the provision of affordable housing, childcare and mobility in a combined package. Additional measures could involve further developing exchange programmes with mainland Portugal to address short-term staffing shortages while fostering professional development. To ensure comprehensive support, the regional government should establish coordinating mechanisms that bring together public agencies, private employers and professional associations to create integrated packages for professionals and their families.

• Build local capacity and skills. The Azores is already dedicating a significant share of Cohesion Policy funds to support qualification, employment, and social inclusion. To maximise the impact of this investment, the Region should align education and training programmes with regional economic priorities and sectors impacted by demographic change or facing labour shortages, such as healthcare, tourism, agribusiness or technology. A good example is the recent initiative in Praia da Vitória, under the Azores 2030 plan, which launched training programmes for young adults in strategic sectors, including agriculture, cooking, and computer science. Closing the innovation gap and strengthening competitiveness, both key priorities in the Cohesion Policy mid-term review, could also be advanced by strategically supporting innovation in these sectors. Current programmes offered through the University of the Azores could be expanded and better tailored to local business needs by further collaborating with industry leaders to identify skill gaps, and further developing internship and apprenticeship programmes. A good example is the recent “Estágios profissionais” initiative, under the Azores 2030 plan, which aims at promoting rapid integration of qualified youth, both higher education and vocational qualification graduates, into the labour market through professional internships.

• Adapt healthcare training and support to address the changing demographic landscape by focusing on high-demand areas such as geriatrics, chronic disease management, and palliative care, developing community engagement and volunteer programmes for retired healthcare professionals, and strengthening support for family caregivers through financial assistance, flexible work arrangements, and logistical support. Ensuring equal access to healthcare, fostering the resilience of health systems, and promoting the transition from institutional care to family-centred and community-based care are already key priorities in the Azores regional programme for 2021-2027. A good example is the regional government’s comprehensive elderly care programme, which enables elderly individuals to remain in their homes while receiving care from hired domestic caregivers supported by a multidisciplinary team of healthcare professionals. It has not only improved healthcare accessibility but also helped reduce unnecessary hospital visits. These efforts have the potential to reduce long-term healthcare costs but also to improve the quality of care, in particular for low-income populations who tend to be disproportionately affected by chronic illnesses.

Action plan

This action plan outlines a series of targeted actions linked to the policy recommendations developed for each policy sector in the report. These reflect the levers available to national, regional and local authorities to help adapt to demographic change. Each recommendation is broken down into concrete actions, specifying the relevant actors and an indicative timeline. A proposed lead actor, typically the institution with legal authority or technical competence, is listed first, followed by key partners involved in the delivery of the action. Timelines are classified as short-term (1-2 years), medium-term (3-5 years), or long-term (beyond 5 years), which has been determined based on a judgement of the regulatory, financial, and institutional requirements of the action. Recommendations that have a strong link to the priority topic of talent retention have also been explicitly identified.

Given the breadth and complexity of the proposed actions, it is recommended that the Azores regional administration organises a forum with relevant stakeholders and seeks to develop an implementation roadmap. This roadmap could provide a prioritisation matrix for each action’s expected impact (low, medium, high) and feasibility, including political will, administrative capacity and the availability of finance. It should also identify funding sources, designate a clear lead institution and provide a realistic timeline for implementation. Establishing such a roadmap would support effective sequencing, foster alignment across government levels, and enhance transparency and accountability in the implementation of the recommendations.

 

Recommendation	Action	Actors	Timeline	Priority
Land use and spatial planning
Update and modernise spatial planning frameworks	Modernise the regional spatial plan (PROT-A) to incorporate contemporary paradigms	- Regional Directorate for Forest Resources and Land Management	Medium-term
	Update municipal spatial plans (PDMs) with population-based development parameters	- Municipal planning departments - Regional Directorate for Forest Resources and Land Management	Medium-term
	Develop a dedicated programme to financially and administratively support municipalities in managing vacant housing	- Regional Directorate for Forest Resources and Land Management - National government	Medium-term
	Invest in repurposing vacant properties towards more relevant uses	- Regional Secretariat for Finance, Planning and Public Administration - Regional Directorate for Forest Resources and Land Management - European Commission	Medium-term	Talent- better quality services
Support smart densification in high-demand areas	Incentivise urban regeneration through strategic density bonuses and regulatory flexibility	- Municipal planning departments - Regional Directorate for Forest Resources and Land Management	Medium-term	Talent- affordable housing
	Provide financial incentives for businesses to locate in designated urban regeneration zones and to develop mixed-use properties with affordable housing units	- Regional Directorate for Planning and Structural Funds - Regional Directorate for Forest Resources and Land Management - Municipal planning departments - European Commission	Medium-term	Talent- job creation and housing
	Retool land and property taxes to address land underutilisation	- Regional Secretariat for Finance, Planning and Public Administration - National government	Long-term
	Actively implement LVC instruments to capitalise on property value uplifts generated by tourism	- Municipal planning departments - Regional Secretariat for Finance, Planning and Public Administration	Short-term
	Levy charges for development rights to divert development away from urban peripheries and coastlines	- Municipal planning departments - Regional Secretariat for Finance, Planning and Public Administration	Short-term
Match housing supply with demand	Evaluate housing construction permit approvals based on demographic projections contained in spatial plans	- Municipal planning departments - Regional Directorate for Housing	Short-term
	Boost provision of affordable and social housing through LVC instruments and dedicated programmes	- Regional Directorate for Forest Resources and Land Management - Regional Directorate for Housing - Regional Secretariat for Finance, Planning and Public Administration - Municipal planning departments - European Commission	Short-term	Talent-social and affordable housing
	Strengthen the construction workforce and develop local workforce capacity	- Regional Directorate for Vocational Training and Employment	Short-term	Talent- jobs
Promote intermunicipal spatial planning	Establish a dedicated regional support programme for intermunicipal spatial planning	- Regional Directorate for Forest Resources and Land Management - National government - Regional Secretariat for Finance, Planning and Public Administration - Municipal planning departments	Medium-term
Multi-level governance and subnational finance
Reinforce strategic planning to strengthen regional resilience against demographic pressures	Strengthen regional and municipal statistics	Azores Statistics Office National Statistics Office Madeira Regional Statistics Office (DREM)	Medium-term
	Integrate demographic projections in regional cross-sectoral strategic documents	- Regional Directorate for Planning and Structural Funds - Regional Directorate for Forest Resources and Land Management Regional Directorate for the Budget and Treasury European Commission	Medium-term	Talent-better targeting and use of incentives
	Establish a clear framework for policy coherence at regional level	Legislative Assembly of the Azores Regional Directorate for Entrepreneurship and Competitiveness Regional Directorate for Communities Regional Directorate for Tourism Regional Directorate for the Budget and Treasury Regional Directorate for Vocational Training and Employment	Medium-term
	Ensure inclusive, multi-level stakeholder engagement in the design and implementation of the regional framework for addressing demographic change	Island councils Regional Directorate for Communities Economic and Social Council Association of Municipalities of the Autonomous Region of the Azores (AMRAA)	Short term	Talent-direct involvement in policy design
Strengthening regional and municipal finances to improve fiscal sustainability and support effective investment	Publish and review tax incentives	Regional Directorate for the Budget and Treasury National government Association of Municipalities of the Autonomous Region of the Azores (AMRAA) European Commission	Medium-term	Talent-more efficient use of fiscal resources
	Strengthen and diversify regional own-source revenues	Regional Directorate for the Budget and Treasury	Short-term
	Ensure more stable and predictable domestic financial transfers to autonomous regions	National government Regional Directorate for the Budget and Treasury Regional Directorate for Planning and Structural Funds European Commission	Medium-term	Talent-more efficient use of fiscal resources
	Control growth in health expenditure	Regional Directorate for Health Health Units Regional Directorate for Social Security Institute for Social Security of the Azores	Medium-term
	Enhance municipal own-source revenue from property taxes	Regional Directorate for Local Governments National government Municipal governments	Medium-term
	Build capacity at the regional and municipal level for efficient service provision and investment implementation	Regional Directorate for Planning and Structural Funds Association of Municipalities of the Autonomous Region of the Azores (AMRAA) Municipal and parish finance departments Regional Directorate for Housing National government	Short-term	Talent-better targeting and implementing of policies
Review multi-level governance structures to encourage coordination and ensure service efficiency	Promote cooperation culture between municipalities via contractual arrangements	Regional Directorate for the Budget and Treasury Association of Municipalities of the Autonomous Region of the Azores (AMRAA) European Commission	Medium-term
	Clarify competences in the transportation sector	National government Legislative Assembly of the Azores Regional Land Transport Fund Regional Directorate for Mobility	Long-term
	Formalise vertical and horizontal coordination mechanisms at the regional scale	Legislative Assembly of the Azores Island councils Economic and Social Council Diaspora Council	Long-term	Talent-better targeting and implementing of policies
Service provision and accessibility
Streamlining transportation and improving connectivity to promote regional integration and economic sustainability	Optimise transport network with seasonal adjustments to public transportation offer, and enhanced intermodal connections between buses, flights and ferries	- Regional Directorate for Mobility - Bus operators - Atlânticoline - SATA - Municipalities	Short-term	Talent-better quality services
	Enhance connectivity in smaller islands and rural areas by developing on-demand transport services and carpooling initiatives	- Regional Directorate for Mobility - Municipalities - Taxi companies - Bus operators	Short-term	Talent-better quality services
	Improve sustainability of transportation and develop local renewable energy production	- Regional Directorate for Energy - Regional Directorate for Mobility - Regional Directorate for Environment and Climate Action - National government - Municipalities	Long-term
Optimising service networks and accessibility to strengthen resilience and ensure equitable service provision	Better tailor service networks with future needs based on demographic projections	- Regional Directorate for Education and Educational Administration - Regional Directorate for Health - Municipalities	Medium-term
	Further develop digital solutions (telemedicine, remote monitoring systems, e-learning) to enhance accessibility to services.	- Regional Directorate for Education and Educational Administration - Regional Directorate for Health - Regional Directorate for Vocational Training and Employment	Short-term	Talent-more accessible services
	Promote integrated service delivery through multi-level service centres	- Regional Secretariat for Finance, Planning and Public Administration - Regional Directorate for Forest Resources and Land Management - Regional Directorate for Education and Educational Administration - Regional Directorate for Health - Municipalities	Medium-term
Retaining and attracting skilled labour and developing the skills of the workforce to enhance regional competitiveness	Attract and retain skilled labour by developing a more comprehensive incentive framework for healthcare workers and teachers, encouraging exchange programmes.	- Regional Directorate for Health - Regional Directorate for Education and Educational Administration - Municipalities	Medium-term	Talent-more attractive labour markets
	Build local capacity and skills by aligning education and training programmes with regional economic priorities and sectors impacted by demographic change or facing labour shortages, and strengthening vocational training	- Regional Directorate for Vocational Training and Employment - Regional Directorate for Education and Educational Administration - University of the Azores	Medium-term	Talent-better and more tailored education and training
	Adapt healthcare training to future needs, develop volunteer programmes for retired healthcare professionals and strengthen support for family caregivers	- Regional Directorate for Heath - Regional Directorate for Vocational Training and Employment - University of the Azores - National government	Medium-term

Note: The proposed lead actor for each action is indicated in bold.