Portugal’s Housing Costs Skyrocket, Outpacing the Rest of Europe

A 17.2 % jump in home prices has flung Portugal to the very top of the European real-estate charts. For households already juggling climbing food bills and steeper mortgage instalments, the news confirms what many feel on the ground: finding an affordable place to live is becoming the country’s thorniest economic issue. While Eurostat’s fresh data compare Portugal with its neighbours, the figures also reopen an old domestic debate about supply bottlenecks, foreign demand and the state’s responsibility to keep roofs within reach.

Portugal’s sudden acceleration in a slowing Europe

A year ago the conversation in Brussels still centred on how higher interest rates might cool overheated property markets. Yet Portugal has sprinted the opposite way. Eurostat’s second-quarter release shows Portuguese house prices rising 17.2 % against the same period in 2024, dwarfing the 5.1 % average in the euro area and the 5.4 % across the EU. Behind Portugal trail Bulgaria at 15.5 % and Hungary at 15.1 %, while Finland stands alone in negative territory (-1.3 %). On a quarter-to-quarter basis Portugal again tops the table with 4.7 % growth. The surge means that since 2010 prices have climbed a startling 141 %, doubling far faster than wages.

Hotspots and new frontiers for price pressure

Lisbon and Porto still command the nation’s highest price tags, but the fastest jumps are migrating inland. Beja’s annual rise of 33.9 %, Santarém’s 26.7 % and Guarda’s 20.5 % illustrate how buyers priced out of the coast are scouting cheaper districts. Meanwhile the Algarve continues to tighten, with Faro’s double-digit gains reflecting enduring appeal to foreign retirees and digital nomads. Urban cores have not stood still—Lisbon added 2.7 % and Porto 4.3 % year-on-year in September—yet the interior’s break-neck pace is shrinking the cost gap between the Tagus, the Douro and smaller provincial cities.

Second-hand bricks outshine new cement

Eurostat’s country-level index masks a striking split: the rally is powered by the existing-home segment, where prices jumped 18.3 % in the quarter. New builds advanced a milder 4.5 %. Developers blame a cocktail of lengthy licensing procedures, soaring labour costs and an historic distrust of high-rise construction for the shortage of fresh stock. Buyers, meanwhile, flock to renovated apartments in city neighbourhoods where green-field land has long run out. The imbalance is so acute that, for the first time, many architects speak openly of a renovation bubble—refitting aged buildings purely to flip them rather than to expand sustainable housing supply.

Demand: local wages versus global wallets

Economists point to four overlapping forces stoking demand. First, a resilient labour market—unemployment hovers near historic lows—keeps young professionals house-hunting. Second, a gradual fall in mortgage rates since early 2025 has coaxed families back into the market. Third, foreign investors, chiefly from France, Germany and the UK, continue to treat Portuguese property as a safe, euro-denominated asset. Finally, lifestyle migrants—remote workers and pensioners chasing sun—add pressure on coastal municipalities. The result is a contest in which local salaries averaging €1 416 net per month compete against euro-zone and dollar-based incomes, pushing prices beyond what median Portuguese households can sensibly afford.

Government’s fresh toolkit faces a steep hill

Pressed by opposition parties and town-hall mayors, the cabinet approved a new housing package on 25 September. Key planks include IRS deductions up to €900 for renters, a drop in landlord tax from 25 % to 10 % for moderate leases, IVA on mid-priced construction cut to 6 %, and a promise to pour €4 B into 59 000 public units by 2030. Municipalities gain authority to rezone rural land if 70 % is earmarked for affordable projects, while short-stay licences for Alojamento Local will be capped in the largest cities. Whether the measures bite quickly enough is unclear; bureaucratic delays in planning offices average 16 months and could dilute the impact of the fiscal carrots.

What comes next—and what to watch

Analysts at three Lisbon banks expect 2026 growth to moderate to between 6 % and 9 %, assuming the European Central Bank holds rates steady and new supply slowly emerges. Yet all warn that demographic trends, including a projected return of 50 000 emigrants per year, could keep demand tight. The Bank of Portugal has not signalled imminent macro-prudential steps but continues to monitor debt-service ratios after lifting stress-test buffers earlier this year. For residents eyeing their next lease or mortgage renewal, the lesson is blunt: the market may cool, but it is unlikely to turn cold. Unless construction accelerates dramatically, Portugal’s housing squeeze looks set to remain a defining economic story well beyond 2025.