Portugal's Housing Affordability Squeezed as Rental Effort Rate Climbs to 83%
Access to housing in Portugal is becoming increasingly challenging as property prices continue to outpace household income growth, according to a new study by the real estate portal Idealista. The analysis reveals that while the pace of rent increases has slowed, the financial effort required to rent a home in the country has risen to 83% of the average salary in the second quarter of 2025, a one percentage point increase from the same period in 2024. In contrast, the national effort rate for purchasing a home has stabilized at 71%, a phenomenon attributed to the balancing effect of rising house prices, which saw an 8% annual increase, and falling interest rates on mortgages.
The report is based on an analysis of the effort rate, an indicator measuring the percentage of household income required for housing costs, across 20 of Portugal's district capitals. The data was sourced from Idealista's own rental and sales price listings and cross-referenced with net household income data from the Instituto Nacional de Estatística (INE) and interest rate information from the European Central Bank (BCE).
The rental market shows significant pressure in key cities. Faro, in the Algarve, saw the most dramatic increase in its rental effort rate, which jumped by 20 percentage points over the last year, from 70% in the second quarter of 2024 to 90% in the same period of 2025. Other significant increases were noted in Ponta Delgada (+15 p.p.), Guarda (+4 p.p.), and Funchal (+3 p.p.). However, some major cities experienced a slight decrease in the rental burden, including Lisbon (-3 p.p.), Porto (-1 p.p.), and Setúbal (-3 p.p.), suggesting some localized market adjustments.
Despite some decreases, the absolute effort rates in major urban centers remain exceptionally high. After Faro's 90%, Funchal requires 89% of income for rent, while Lisbon stands at 83%. Porto follows at 71%. All major cities analyzed presented effort rates far exceeding the widely recommended affordability threshold of 33%. The most affordable cities for renting are Castelo Branco and Guarda, both at 34%.
In the home purchase market, the effort rate increased in six of the twenty cities analyzed. Setúbal saw the largest rise, with the mortgage effort rate increasing by 6 percentage points to 55%. Lisbon also saw an increase of 2 percentage points, reaching a staggering 108%. This figure implies that the average mortgage payment in the capital now exceeds the average net household income, making homeownership unattainable for many without substantial external financial support.
Conversely, the effort to purchase a home became less strenuous in 12 cities, with the most significant decreases seen in Funchal (-14 p.p.), Vila Real (-14 p.p.), Faro (-10 p.p.), and Porto (-8 p.p.). This suggests that in these locations, the impact of lower interest rates has more than compensated for the rise in property prices. The most affordable cities to buy a home are Castelo Branco and Guarda, both with an effort rate of just 17%.
A representative from a national consumer association commented on the findings, stating, "The data clearly illustrates a deepening housing crisis. The rental market is under extreme pressure, and while the stabilization in the purchase effort rate might seem like good news, it's happening at levels that are unsustainable for the average family in our main cities. A coordinated policy response is urgently needed."
The analysis from Idealista provides a granular view of the geographic disparities in Portugal's housing market. While prime markets like Lisbon, Porto, and the Algarve present significant affordability challenges, they also reflect high demand, which continues to attract investors. Meanwhile, several smaller district capitals remain affordable, potentially signaling opportunities for market decentralization.
The study's methodology calculates the rental effort rate as the percentage of average net household income needed for the annual rent of a typical property. The purchase effort rate is calculated similarly, using the annual cost of an average mortgage. The recent update to the calculation incorporates the latest interest rate data from the BCE to reflect current financing conditions.
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