Incoming Bank of Portugal Governor Warns on Housing Prices, Citing Financial Stability Risks
Álvaro Santos Pereira, the economist nominated to become the next Governor of the Bank of Portugal, identified the sharp increase in national housing prices as a significant risk to the country's financial stability during a parliamentary hearing on Wednesday. In his address to the Committee on Budget, Finance, and Public Administration, Santos Pereira stressed that increasing the housing supply is an “absolute priority” for the nation's economic health. The hearing is a mandatory step before his official appointment, following his proposal by Finance Minister Joaquim Miranda Sarmento and approval by the Council of Ministers in July.
The incoming governor outlined several key policy directions, emphasizing a commitment to making the central bank more transparent and engaged throughout the country. However, his most pointed remarks concerned the real estate sector. He stated that the Bank of Portugal must dedicate “special attention” to the property market due to its importance for financial stability. He directly linked the current market pressure to a fundamental imbalance, noting, “we have been building less and demand has been increasing. We have to ensure that the supply will increase, which involves the municipalities and the governments.” He repeatedly stressed the solution must be “supply, supply, supply.”
To support this, Santos Pereira announced the central bank would enhance its role in data collection and analysis of the real estate market's economic impact. The objective is to provide robust evidence to “raise awareness of the need to increase the housing supply.” This signals a more proactive stance from the central bank on an issue that, while officially the purview of the government and local authorities, has clear systemic financial implications. He warned that while Portuguese banks are currently well-capitalized, there is “no room for complacency,” given the risks tied to the strong appreciation in property values over recent years.
During the hearing, Santos Pereira also touched upon his broader economic philosophy, positioning himself as a hawk on inflation control. “I am certainly not a dove,” he affirmed, suggesting that he supports maintaining higher interest rates in the Eurozone for an extended period to ensure inflation returns to its target. This position aligns with his call for continued fiscal discipline in Portugal to further reduce the public debt-to-GDP ratio, which currently stands above 95%. He noted the importance of building fiscal buffers to handle potential external shocks, such as geopolitical conflicts or trade disruptions.
The economist, who previously served as chief economist at the OECD, also defended the principle of central bank independence, stating he would take it “to the limit.” He confirmed that he has never been a member of a political party and believes that senior officials at the Bank of Portugal should not be involved in active party politics to maintain the institution's non-partisan mission. In response to questions, he also addressed the controversial plan for a new central bank headquarters, stating he would analyze the dossier in detail upon taking office but affirmed the project would be financed through the sale of existing bank-owned land.
Santos Pereira’s testimony indicates that the housing market will be a central focus of his mandate. His policy objectives clearly connect the lack of housing supply not only to social challenges but also to the accumulation of household debt and the potential for a downturn to impact the banking sector. His approach suggests a dual strategy: using the central bank's analytical capacity to press for supply-side reforms while maintaining a cautious stance on credit and monetary policy to prevent further overheating. This places the real estate market at the intersection of Portugal's monetary, fiscal, and social policy debates for the foreseeable future. Understand policy impacts on your Portugal property plans at realestate-lisbon.com.
