State Budget to provide over 500 million for affordable housing construction
The construction of public affordable housing stock is set to be financed by the Recovery and Resilience Plan (PRR), a loan from the European Investment Bank (EIB), and the State Budget (OE), which will be called upon to provide 511.63 million euros by 2030. This measure comes as the ambition within the PRR was reduced and because the EIB loan does not permit 100% financing of the expenses to be incurred, nor the corresponding value-added tax. According to the resolution of the Council of Ministers published this Wednesday in the Diário da República, the PRR is designated to pay 463.16 million euros for the construction of 3,500 affordable public housing units. This initiative is part of a broader government strategy to address housing shortages, a topic of significant interest to both residents and investors monitoring regulatory and legal frameworks in Portugal.
Initially, the European 'bazooka' was intended to finance 6,800 housing units, but this year's reprogramming scaled back the program's ambition. The Executive justified this change by citing "low demand from municipalities, which prevents the timely implementation of all housing units defined in the PRR." The remaining 3,300 units were expected to be "financed with recourse to the EIB," with an estimated "financial impact of around 436.7 million euros."
However, this new resolution clarifies that the 3,300 remaining homes will be paid for with "funds from national financing sources, to be inscribed in the budget of the IHRU," as stated in the document. The diploma also reiterates that the VAT incurred on projects financed by the PRR will be reimbursed by the State. This move signals a strong domestic commitment to housing development, a key area within our Construction Updates News section.
In a parallel effort, the Executive has entered into a loan agreement with the EIB to "develop the program for the construction and rehabilitation of up to 12,000 affordable housing solutions under the Rental Support Program." The total value of this agreement is 1.34 billion euros, though only a first tranche of 450 million euros has been contractualized so far.
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The government explains that this EIB loan "does not allow for 100% financing of the total expenses to be incurred, nor the corresponding value-added tax." Furthermore, the EIB does not consider expenses related to the acquisition of land or buildings as eligible for financing. These limitations necessitate the direct involvement of the State Budget.
Consequently, the State Budget is required to finance the Public Affordable Housing Park with 511.63 million euros. The Institute for Housing and Urban Rehabilitation (IHRU) is therefore authorized to carry out the expenditure and assume the multi-year commitments between 2025 and 2030 for this amount, to which VAT at the current legal rate will be added.
These funds will be scheduled on a year-by-year basis (until 2030) through a resolution of the Council of Ministers, following the completion of the approval process for the total EIB financing. This policy is a significant development for the national real estate landscape, and those seeking to understand its implications can find expert advice from English-speaking real estate lawyers.
Understand policy impacts on your Portugal property plans at realestate-lisbon.com.