Housing rules, not cash, are Portugal's growth bottleneck

Portugal’s new central bank chief has chosen to start with the hardest truth: the economy can’t accelerate without more homes. Álvaro Santos Pereira says the country is stronger than it was 10 years ago, yet warns that housing bottlenecks, lingering high debt, and a shortage of new construction are holding back growth. His early message puts municipal rules, not subsidies, at the center of the fix—and ties central bank independence to the credibility needed to push difficult structural reforms.

Why the housing squeeze is now a macroeconomic problem

Homes are no longer just a social concern; they shape productivity, financial stability and where people can live relative to jobs and transport. By linking the shortage of affordable housing to slower growth, the governor is signaling that local planning decisions affect the entire economy. Data back that urgency: the national median price reached about €1,777/m² in 2024, and new leases climbed roughly 10.5%, with Greater Lisbon and the Algarve far above the average. Tight supply, persistent demand and sluggish new builds are the drivers.

For Portuguese families, the macro implications are concrete. Elevated prices and rents squeeze disposable income, while overstretched borrowers raise risks for banks if conditions turn. That’s why the Banco de Portugal, under Santos Pereira, is framing housing as part of the country’s resilience strategy, not as a separate social policy. The stance also aligns with OECD advice to expand supply, modernize planning, and strengthen the rental market. More homes in well‑connected areas can lift participation, support productivity and improve inclusion.

From paper to permits: what municipalities must change

The governor’s most pointed line was aimed at town halls: the main problem is excessive construction restrictions, not a lack of financial incentives. That view meets a changing legal landscape. The Simplex Urbanístico under Decreto‑Lei n.º 10/2024 trims red tape, imposes deadlines for municipal decisions, and expands tacit approval when those deadlines lapse. In many cases, old licences give way to prior notification, focusing municipal checks on zoning compliance, land‑use, façade and landscape fit, and infrastructure.

Further upgrades are on the way. The legacy RGEU is scheduled for revocation on 1 June 2026, clearing space for a modern Construction Code, and a nationwide digital platform for planning procedures becomes mandatory from January 2026. Still, PDM revisions can entrench limits—particularly on rural land—and Portugal faces a shortage of 80,000–90,000 skilled construction workers, which complicates delivery. The message to local leaders is clear: accelerate licensing, simplify rules, and align urban plans with housing needs so cheaper capital translates into actual homes. Official texts are available via DRE.

What young buyers and renters can actually use in 2025

Families looking for relief will find a wider, if imperfect, toolkit. The revamped IRS Jovem now covers under‑35s for up to 10 years, with stepped tax relief that can reach roughly €28,737 in 2025. A state guarantee for first‑home loans up to €450,000 covers as much as 15% of the price; it has been adopted by 17 banks, used for about 13,200 loans by mid‑year, and expanded to €1.55B as demand surged. Eligible buyers may also benefit from IMT and stamp duty exemptions. Details are available on the Portal da Habitação.

On the rental side, the government is scaling affordable housing via IHRU acquisitions, construction and rehabilitation of up to 12,000 units, paired with incentives for private landlords who offer moderate rents. The ambition is 59,000 affordable homes by the end of the decade, using state land, streamlined procedures and new partnerships. Lisbon has added rounds of its Accessible Rent Programme for under‑35s; updates are posted by the Câmara de Lisboa. The bottom line: targeted tax breaks, stronger credit access and expanded public stock can help specific groups now, but broad price relief depends on sustained new supply.

Debt remains heavy: the warning behind the optimism

Santos Pereira credits Portugal with progress in trimming public, household and corporate debt, including within banks, but argues levels are still too high to be comfortable. Continued deleveraging is the buffer that protects the economy when shocks hit. For households, that means watching rate resets and maintaining savings cushions; for firms, reducing leverage before the next downturn; for lenders, safeguarding capital and asset quality if growth cools.

International institutions add a medium‑term angle. The IMF has suggested that, once affordability improves and the market normalizes, Portugal could revisit property taxation to bring revenues closer to OECD peers—an idea for later, not a quick fix. In the meantime, the central bank will keep a close eye on credit risk, valuation swings and the link between housing cycles and the broader financial system.

Independence, and who is in charge

At the outset of his tenure, Santos Pereira restated a core principle: independence from political power and supervised entities is non‑negotiable. The setting—the Banco de Portugal’s Museu do Dinheiro in Lisbon—was chosen to underscore the institution’s autonomy and public mission. He pledged a more open, present, innovative and attentive central bank, capable of giving candid advice on reforms that may be unpopular in the short term.

The new governor, 53, brings an unusually broad CV: former OECD chief economist and Portugal’s economy minister from 2011–2013. He succeeds Mário Centeno at the Banco de Portugal. That background helps explain his focus on productivity, housing supply and the interplay between growth policy and financial stability—and why he’s comfortable asking municipalities to rethink planning rules.

What this means if you live in Lisbon, Porto or the Algarve

If you’re weighing a move or a mortgage, watch three levers. First, permits: Simplex Urbanístico deadlines, expanded tacit approvals and the coming digital platform should, in theory, speed projects through 2025–2026. Second, capacity: without more construction workers, schedules slip and costs stay high. Third, targeted support: IRS Jovem, public guarantees and IMT breaks can tilt the math for under‑35s, while expanding affordable rental programmes may open options near transport and jobs.

For now, Greater Lisbon and the Algarve remain the priciest markets, with the Porto metro close behind. If municipal leaders follow through—loosening planning constraints, aligning PDMs with housing needs and protecting genuine heritage while enabling density—the pipeline should thicken. The central bank’s new leadership is effectively urging a national bargain: keep lowering debt, clear bottlenecks, and build the homes that make the next upswing broader and fairer than the last.