Preparing for Demographic Change in the Azores, Portugal

Executive summary

The Azores, one of Portugal's two autonomous regions, is an archipelago of nine islands positioned in the Atlantic Ocean. It possesses unique and valuable assets, including its geostrategic location, UNESCO-recognised biosphere reserves and world heritage sites, distinctive agri-food products and significant potential in the blue economy and renewable energy sectors. The recent tourism boom following the partial liberalisation of its airspace in 2015 demonstrates the region's inherent attractiveness and appeal.

Nonetheless, 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 240 000 residents, the region experienced a population decline of 2.7% from 2010 to 2023, while the outmigration rate of young people (15-39) was at 8.1% during the same period, more than three times that of the general population. Projections suggest the region could further lose a sixth of its population by 2060, with the working-age population shrinking by a third and the elderly population increasing by three-quarters. As a result, the Azores is part of a group of regions designated by the European Commission as being at risk of falling into a ‘talent development trap’, where demographic decline compounds the loss of talented individuals.

Adapting strategically to these challenges presents an opportunity to reconsider what makes the Azores attractive. The region can leverage its unique assets together with the significant autonomy it enjoys as an autonomous region and EU Outermost Region to transform demographic challenges into competitive strengths. Purposeful spatial planning can create vibrant neighbourhoods that attract residents, improved governance frameworks can help make better use of limited fiscal resources, while modernised and digitised public services can enhance accessibility for current and future residents. These adaptations can thus improve quality of life and generate economic opportunities, strengthening the region's appeal to younger generations.

Adapting land use and spatial planning

Developable land is scarce in the Azores due to its volcanic topography and vast natural reserves, yet existing built-up land remains underutilised. Despite population decline, the urban centres of Ponta Delgada, Angra do Heroísmo and Horta continue expanding outward, threatening natural landscapes and agricultural lands vital for sustainability maintaining the region’s unique identity. Continued coastal development damages marine ecosystems and endemic species habitats. Since 2015, housing prices in the Azores have risen faster than in any other Portuguese region, pushing out young professionals and families. However, housing supply is not targeted towards where it is needed most, such as in tourism hotspots or high-demand urban areas, while social housing represents just 2.3% of total housing stock. Though recent national planning reforms introduced contemporary planning paradigms and a national demographic strategy for spatial planning, regional and municipal plans have not yet implemented these changes. The lack of intermunicipal coordination in spatial planning limits a unified response to demographic pressures. To help address these challenges, key policy avenues are as follows:

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

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

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

• Promote intermunicipal spatial planning to optimise service provision and resource allocation

Adapting multi-level governance and subnational finance

The Azores lacks cross-sectoral, vertical and horizontal policy integration, with government levels often working in silos resulting in resource inefficiencies. The region relies on costly incentives to attract residents and businesses yet faces growing financial strain, particularly in healthcare where spending rose from 6% to 8% of regional GDP between 2010 and 2023. Geographic isolation creates stark differences in spending, with remote municipalities such as Corvo requiring more investment resulting in up to eight times more spending per capita than Ponta Delgada despite minimal tax revenue. Though fiscally autonomous, the regional government relies on national transfers and EU funds for basic services and investment in health and education. Portugal's decentralised governance structure blurs responsibilities between government levels, particularly in transport, land use and housing where coordination is essential. Limited municipal cooperation represents a missed opportunity to collectively address demographic challenges through pooled resources and joint planning. To help address these challenges, key policy avenues are as follows:

• Reinforce strategic planning to strengthen regional resilience against demographic pressures

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

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

Adapting service provision and accessibility

Geographic fragmentation challenges transport and service delivery. Just 11.5% of workers use public transport versus 71% relying on private vehicles, creating accessibility barriers for the youth and increasing emissions. Transport budgets have more than doubled since 2001, mainly for air subsidies. Service provision is increasingly mismatched, with educational facilities underutilised in depopulating areas while healthcare is overburdened by ageing populations and chronic disease. Only three islands have hospitals, necessitating costly inter-island transfers, while smaller islands lack basic childcare and education. The region struggles to attract and retain professionals, particularly in healthcare where practitioner numbers lag mainland Portugal. Tertiary educational attainment remains half that of Lisbon and school dropout rates are nearly triple the national average, creating skills mismatches that undermine economic development and youth retention. To help address these challenges, key policy avenues are as follows:

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

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

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