Portugal rent reform draws fire from tenants, economists

The price of a roof over one’s head keeps outpacing wages in Portugal, and the government’s latest attempt to tame the market – a patchwork of tax breaks for landlords and modest deductions for tenants – is drawing fire from nearly every direction. While Prime Minister Luís Montenegro promises that the concept of renda moderada will widen access to housing, critics warn that the headline figure of €2,300 a month says more about Lisbon’s luxury segment than about the budgets of ordinary families.

A Crisis Still Heating Up

Rents have climbed uninterrupted for eight straight quarters. Nationally, the median lease hit €1,300 in September, a level that swallows half the take-home pay of many workers. In Lisbon and Porto, double-digit rises since 2024 collide with flat wage growth, pushing the OECD’s housing affordability index for Portugal into the least affordable tier on the continent. Even the government-imposed ceiling of 2.16% on annual rent updates for 2025 has failed to cool the market, because most new contracts are signed well above older price levels.

Inside the Government’s New Blueprint

Under the umbrella programme Construir Portugal, the cabinet has rolled out a mix of carrots and sticks. The most talked-about pillar is the introduction of “moderate rent” bands between €400 and €2,300, coupled with a sweeping cut in IRS on rental income from 25% to 10% when landlords stay within those limits. Tenants, for their part, will be allowed to deduct up to €900 in 2026 and €1,000 in 2027 from their yearly tax bill. Builders obtain a 6% VAT rate on new homes priced under €648,000 or destined for leases below the moderate threshold, while foreign buyers (with the exception of emigrants) face a steeper IMT transfer tax. The government says the package is designed to “unleash supply”, backed by a €1.34 B credit line from the European Investment Bank for public-private projects.

Where the Plan Meets Resistance

Housing advocates argue that the measures tilt in favour of property owners and do little for households already devoting more than 35% of income to rent. Economists sympathetic to that view point out that a €2,300 cap is almost double the national median salary, making the term “moderate” feel disingenuous. Even Montenegro conceded in parliament that such a monthly charge is “high”. Meanwhile, the plan to scrap the 2% limit on increases for new contracts and to speed up evictions has alarmed tenant unions, who fear an acceleration of displacement from city centres.

Winners and Losers: Who Benefits in Practice?

Early simulations by the University of Coimbra suggest that landlords in higher-price districts reap the largest gains: a two-bed flat rented at €1,800 would yield an after-tax return comparable to pre-crisis levels. Families on lower incomes, by contrast, often lack enough withholding tax to fully exploit the IRS deduction; about 38% of current low-wage tenants pay no income tax at all, according to Finance Ministry data, rendering the benefit moot. The pre-existing €200 extraordinary rent subsidy, retained until 2028, reaches fewer people each month as contracts signed after March 2023 remain largely excluded.

How We Got Here: From “Mais Habitação” to “Construir Portugal”

António Costa’s €900 M “Mais Habitação” prioritised direct rent subsidies and tight price controls, including the controversial ban on steep rent hikes for new leases. Montenegro has reversed several of those constraints while doubling down on supply-side incentives, promising 59,000 new public units by 2030 – more than double Costa’s target – and ultimately 133,000 with municipal help. The ideological shift is clear: Costa trusted the state to intervene in prices, whereas Montenegro bets that tax relief and faster licensing will let the market self-correct.

Voices from the Ground

Maria Nunes, a 42-year-old single mother in Almada, recently sold her flat because she could no longer manage a €520 rent on a €1,050 salary after interest rates ate into her disposable income. “The prime minister tells me to wait for new stock,” she says, “but I need a roof this winter, not in 2029.” On the other side of the equation, Pedro Alves, who owns three properties in Cascais, welcomes the lower tax on rental income, saying it “finally makes leasing more attractive than short-term tourists.” Such divergent realities underscore the policy dilemma.

The European Angle

Portugal is not alone. Spain and Ireland are grappling with similar shortages, but both maintain stricter national rent caps than Lisbon now envisages. Brussels, meanwhile, is urging members to channel EU Recovery Fund money into affordable housing. Portugal has earmarked part of its envelope for the public-private partnerships financed by the EIB; yet procurement hurdles have delayed ground-breaking on most sites, and only 1 in 10 promised units has left the drawing board.

Reading the Fine Print: What Renters Should Know for 2025

For tenants about to renew or sign a lease, the legally mandated maximum uplift is 2.16% on existing contracts. New agreements are exempt and may reflect current market rates. Tax deductions on rent can be claimed in the 2026 IRS return, provided the contract is registered on the Finance Portal. Those eligible for the extraordinary subsidy must reconfirm household composition by year-end to avoid suspension of payments. Finally, young adults under 35 can still apply to Porta 65, which accepts applications without a signed lease, a change introduced in mid-2024.

What Comes Next?

The housing ministry vows to table a comprehensive rent bill before Christmas, clarifying eviction rules and finalising the moderate-rent criteria. Opposition parties hint at amendments to introduce municipal price ceilings, while tenant groups prepare street demonstrations. With rents mounting and patience thinning, Montenegro faces a reality test: the success of his strategy will depend not on legislative fanfare, but on whether new keys reach the hands of families before the next election cycle.