Landlord and Tenant Associations Criticize Government's 2026 State Budget Housing Measures
The housing crisis has once again become a flashpoint of criticism against the Government following the submission of the State Budget for 2026 (OE2026). The Lisbon Landlords Association (ALP) has expressed regret that the subject was treated “merely as a footnote” within the proposal, arguing that the current “housing emergency” warranted the detailed inclusion of measures that had been announced in September.
The policy objectives of the government's housing plan have been questioned by stakeholders. For Diana Ralha, the director of ALP, “it is disappointing and shocking that this did not happen.” She warned that property owners remain uncertain about how to apply potential benefits, such as the proposed 6% VAT rate for construction and renovation works or the reduction in IRS income tax for landlords. In September, the ALP had proactively sent the Government and the Assembly of the Republic a package of ten proposed measures for integration into the OE2026, which included the abolition of the AIMI additional property tax, support for tenants in need, and enhanced IRS deductions for rental income.
The PSD/CDS-PP coalition government's budget proposal forecasts a GDP growth of 2% in 2025 and 2.3% in 2026, with projected budget surpluses of 0.3% of GDP this year and 0.1% next year. The public debt-to-GDP ratio is expected to decrease to 90.2% in 2025 and 87.8% in 2026. The budget will be debated in parliament on October 27 and 28, with the final vote scheduled for November 27.
From the tenants' perspective, the Lisbon Tenants Association (AIL) considers the announced fiscal measures to be insufficient. Luís Mendes, a leader of AIL, noted that increasing the annual rent deduction in the IRS to 900 euros is inadequate. He also issued a warning that the government's concept of a “moderate rent,” with an upper limit of 2,300 euros per month, could perversely incentivize a general rise in rents due to the associated tax benefits for landlords. This is a critical topic covered in our legal updates news.
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The AIL has put forward four counter-proposals to improve tax deductions for tenants. These include extending the deduction to all rental contracts regardless of their start date and increasing the minimum deduction to at least twice the value of the Social Support Index (IAS). Another suggestion is to allow tenants to deduct the cost of property improvements when authorized by the landlord. For landlords, navigating tax law is complex, and many seek advice from property tax accountants.
Mendes emphasized that the government's package appears to favor landlords more significantly, particularly with the reduction of the autonomous IRS rate from 25% to 10% for rental contracts up to 2,300 euros per month, while the corresponding deduction for tenants fails to provide a proportional benefit. He also advocated for the establishment of a regulatory body to supervise the rental market, enhance the transparency of rental data, and combat tax evasion.
Furthermore, the AIL contends that an investment strategy focused almost exclusively on new housing construction will not resolve the immediate rental crisis. “Increasing supply does not automatically lower housing prices,” Mendes stated. “Valuation depends on location, typology, and property characteristics, and it takes time for these effects to be reflected in the market.” This perspective is often discussed in our investment risks guide. Understand policy impacts on your Portugal property plans at realestate-lisbon.com.