"Based on the most recent data available, the Commission estimates that the average overvaluation is most significant in Portugal," reads a new report.

According to calculations by the European Commission, "prices are estimated to be overvalued by around 35% in Portugal, making it the only country where overvaluation is estimated to have increased significantly by 2024," in contrast to the easing trend observed in most European countries, write Guillaume Cousin, Christine Frayne, Vítor Martins Dias, and Bořek Vašíček, authors of the study "Housing in the European Union: Market Developments, Underlying Drivers, and Policies."

The researchers' analysis for the European Commission confirms what many Portuguese families already experience in their daily lives: housing has become dramatically less affordable. Between 2014 and 2024, Portugal saw nominal house price growth exceeding 200%, placing it among the countries with the most pronounced increases, alongside Hungary, Lithuania, the Czech Republic, Estonia, Bulgaria, and Poland.

Even more revealing is the fact that, adjusting for inflation, between 2014 and 2024, real housing prices grew by more than 50%, a figure far higher than the European average of 25%.

According to a report by ECO, putting pressure on housing prices in Portugal has been, from the outset, a housing supply that has lagged demand, with the report's authors emphasizing that "constrained supply has become a structural feature of housing markets in many countries, resulting in part from regulations covering a range of factors." Portugal dramatically exemplifies this reality, with the document highlighting that "new construction has been declining, reaching historic lows."

Poor productivity

This situation results from multiple structural constraints, the researchers say. "Stricter building regulations and a general decline in construction sector productivity" are identified as primary reasons. The report specifies that "the predominance of small companies in the construction sector makes it difficult to overcome the productivity challenge," in an industry that records the worst productivity performance in the entire European economy.

The study also highlights that Portugal faces particularly long permit processing times, which can reach up to 31 weeks, one of the longest in the European Union. This complex bureaucratic process, involving multiple public and private actors, represents a significant source of inefficiency that drastically limits supply-side response.

At the same time, the report identifies that zoning and land-use restrictions constitute fundamental constraints on the availability of land for housing construction. These regulations, while serving important environmental objectives, determine the possible uses of available land and, when excessively restrictive, severely limit the expansion of housing supply.

Tourism impact

Investors also mention that, although residential investment has returned to pre-2008 levels, this has not translated into substantially more new housing construction. Instead, resources have been directed toward renovations, including energy efficiency improvements, at a time when the sector faces widespread labour shortages and skills mismatches.

Based on this reality, Guillaume Cousin, Christine Frayne, Vítor Martins Dias, and Bořek Vašíček highlight that "Portugal is the European Union country where tourism has had the strongest impact on housing prices." The analysis specifies that "the expansion of home-sharing platforms has disrupted the traditional housing market, blurring the lines between short-term and long-term rentals."

This dynamic "has contributed to a contraction of supply in the long-term rental market, as traditional long-term housing providers reallocate their properties to the short-term market for higher profits," the report states.

Supply and demand

The data presented also indicate that the elasticity of housing supply in Portugal is among the lowest in Europe.

This means there is little market responsiveness. In practice, when housing prices rise, it doesn't automatically result in a large number of new homes being built to balance the market—supply reacts very little to price changes.

This causes prices to continue rising because the number of available homes cannot keep up with growing demand. This "dynamic exacerbates shortages and amplifies price increases, particularly in regions with limited supply," the researchers detail.

The figures from the European Commission report also indicate that Portugal is among the countries where the ratio of housing prices to household income is 20% above levels of a decade ago. This deterioration in housing affordability places Portugal alongside the Netherlands, Hungary, Luxembourg, Ireland, the Czech Republic, and Austria as territories where buying a home has become proportionally more difficult over the past decade.

For families needing to resort to mortgage credit, the situation is even more onerous because, unlike what occurred in countries like Bulgaria, Romania, Croatia, the Czech Republic, and Hungary, where rising incomes led to an increase in families' financing capacity, in Portugal (as well as in Estonia, Luxembourg, France, Slovakia, and Cyprus), the borrowing capacity decreased.

Rental market

This pressure is also visible in the rental market, with Lisbon standing out among the European capitals with the highest financial burden on the part of families to rent a two-bedroom apartment in prime areas. According to researchers, rents for two-bedroom properties in these areas represent an amount equivalent to over 80% of tenants' income. Only in Budapest, Hungary, is the financial burden on tenants greater.

Even in Paris, one of the most expensive European cities to buy and rent a home, despite rents being about 20% higher than in Lisbon, the financial outlay French people make to rent a two-bedroom apartment in a prime area of ​​Paris is much lower than that of the Portuguese in Lisbon, where rents amount to about 60% of their income.

For Portugal, the data presented by this European Commission-sanctioned study confirm a reality that transcends political cycles: the country faces one of the most severe housing affordability crises in Europe, requiring a coordinated and structural response that goes far beyond the measures traditionally implemented.