VAT Cuts, Tax Breaks and 100% Mortgages to Ease Portugal’s Housing Crunch

Portugal’s housing squeeze is proving stubborn: even with billions in public investment and a raft of tax breaks, families still compete for fewer affordable homes than the market needs. The government insists a multi-pronged fix is on the way, yet concedes there is “no single lever that will turn prices around overnight.”

At a Glance: What Lisbon is Trying Now

• 6% VAT on new builds priced for so-called renda moderada

• IRS cut to 10% for landlords who keep rents below €2 300

• €350 M state guarantees so under-35s can borrow up to 100% of the purchase price

• Fast-track licensing and a new public land database (SIGPIP) by June

• Target: 59 000 additional dwellings delivered by 2030, half funded through the EU-backed Recovery Plan

Why the Crisis Persists

Portugal owns one of Europe’s largest housing stocks per capita, yet vacant second homes, short-term rentals and ageing buildings distort supply. INE data show sale prices have climbed 17 % year-on-year through mid-2025, while median incomes rose barely 5 %. Construction lags as municipalities take 18 months on average to approve permits, and skilled labour remains scarce.

The 2026 Toolkit in Detail

Under the State Budget:

• Reduced VAT applies to homes sold under €648 000 or rented below €2 300. The aim is to soften construction costs and lure private developers back to mid-market segments.

• Landlords signing leases at least 3 years long can tap a 15-percentage-point IRS discount, plus full capital-gains exemption if they reinvest in affordable rentals.

• The public guarantee scheme, swollen to €1 .55 B, now absorbs 15 % of loan risk, allowing banks to finance 100 % loan-to-value mortgages for first-time buyers under 35.

What Renters and Buyers Will Notice First

For tenants, the deductible rent ceiling jumps to €900 this year and €1 000 in 2027. Landlords who skipped annual updates since 2023 may raise rents by a cumulative 11 %, but most contracts face a 2.24 % cap. Young buyers benefit from higher IMT and stamp-duty exemptions up to €330 539.

Can Builders Deliver?

Developers welcome lower VAT but warn that steel, cement and labour costs remain 25 % above pre-pandemic levels. The construction federation says roughly 12 000 extra workers are needed to meet 2026 output targets; immigration rules have been relaxed, yet red tape still limits site starts.

Pushback from Tenants and Economists

Associations such as AIL call the €2 300 threshold for renda moderada “out of touch with salaries averaging €1 500.” They fear tax perks will “pad speculative yields” rather than cut rents. The OECD echoes concerns, urging heavier taxation on empty homes and more direct social-housing spend—currently just 0.1 % of GDP, far below the OECD mean.

Market Snapshot: Prices Keep Climbing

• Median sale price Q3 2025: €2 065/m²• Housing price index: +17.7 % YoY• Transactions 2024: 156 325 homes, +14.5 %• Latest rent figure (INE Q1 2025): €8.22/m², +10 %

What Happens Next?

By June 2026, the government must roll out SIGPIP and deliver 26 000 dwellings promised under the 1.º Direito programme. Watch for the first tenders using the 6 % VAT rule; if build costs fall, mid-2026 asking prices will be the real test. Otherwise, Lisbon’s admission stands: there is no silver bullet—only a marathon of incremental steps.