European Commission Reports 35% Housing Overvaluation in Portugal
Portugal's housing market is overvalued by an estimated 35%, the highest in the European Union, according to a new statistical analysis from the European Commission. The report, “Housing in the European Union: Market Developments, Underlying Drivers, and Policies,” released Tuesday, highlights that Portugal is the only EU country where this overvaluation is estimated to have significantly increased in 2024, bucking a trend of stabilization seen elsewhere. The findings point to a severe and worsening affordability crisis. For deeper market insights, stakeholders are monitoring the situation closely.
The data, compiled by economists Guillaume Cousin, Christine Frayne, Vítor Martins Dias, and Bořek Vašíček, is based on a comprehensive methodology analyzing price-to-income ratios, price-to-rent ratios, and fundamental market drivers. The analysis reveals that between 2014 and 2024, nominal house prices in Portugal surged by over 200%, while real prices, accounting for inflation, grew by more than 50%. This far outpaces the EU average real price growth of 25% over the same period.
Specific numerical findings indicate that the price-to-income ratio in Portugal has deteriorated, now standing 20% above its level from a decade ago. This indicates that housing costs have risen much faster than average household incomes, a key metric of overvaluation. Furthermore, the report notes a decrease in the mortgage borrowing capacity for Portuguese families, unlike in several other Eastern European nations where income growth has supported affordability.
The geographic breakdown shows that while the issue is nationwide, it is particularly acute in major urban and tourist centers. Lisbon is cited as one of the European capitals with the highest financial burden for tenants, where the average rent for a two-bedroom apartment in a prime location can exceed 80% of a family's income. This compares unfavorably with Paris, where despite higher absolute rents, the equivalent financial effort is around 60% of income. Such pressures are also relevant for those exploring the Lisbon neighborhoods guide for investment.
A time period comparison shows a consistent upward trend in overvaluation for Portugal, while many other EU countries that experienced housing booms have seen corrections or a slowdown. The report attributes this divergence to several structural factors. A key finding is the extremely low elasticity of housing supply in Portugal, among the lowest in Europe. This means new construction fails to respond adequately to price signals, exacerbating scarcity.
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The market segment analysis points to pressure across all sectors, from affordable to luxury housing. The report identifies a constrained supply pipeline as a primary cause, citing that new construction has fallen to “historic lows.” This is linked to cumbersome and lengthy licensing procedures, which can take up to 31 weeks, and restrictive land-use regulations. The construction sector's low productivity, dominated by small firms, is also a significant factor.
Industry expert commentary within the report, provided by the authors, points to the outsized impact of tourism. The expansion of short-term rental platforms has siphoned properties away from the long-term rental market, directly contributing to price inflation. This has created significant legal issues and market distortions.
There has been no official government response to the data included in the report yet, but the findings align with the acknowledged housing crisis that the current and previous administrations have sought to address through various policy measures. The historical context provided shows a problem that has been building for a decade, transcending political cycles.
The European Commission does not specify a timeline for future data collection but indicates that it will continue to monitor housing market imbalances across the Union. The report serves as a critical benchmark for policymakers and market observers. Stay informed on Lisbon property market developments at realestate-lisbon.com.