Worker Shortage Adds Thousands to Portugal’s New-Build Costs

Portugal’s construction sector has entered the final quarter of the year grappling with another jump in costs. New data from the Instituto Nacional de Estatística (INE) show expenses for putting up a house rose 4.8% in September, accelerating again after a calmer August. Most of the pain is coming from pay packets, not bricks, and the ripple effects are being felt from Lisbon’s riverfront to village plots in the Beira Interior.

Labour squeeze pushes building costs higher

Wage pressure is by far the dominant force. According to INE’s Index of Costs for New Housing, the bill for labour climbed 8.8% year-on-year, a steeper climb than the 7% recorded a month earlier. Developers blame a persistent scarcity of qualified tradespeople—from masons to electricians—who can pick and choose projects or migrate to better-paid jobs in northern Europe. With work sites frequently short-staffed, employers in Portugal are paying overtime, signing retention bonuses and accepting longer completion times. The resulting wage spiral now accounts for well over half of the total increase in building costs, an unprecedented share since the series began.

Material prices: glass and concrete still sting

Prices for inputs have cooled compared with the peaks of 2022, yet pockets of volatility remain. Glass and mirrors surged roughly 30% in the past 12 months as European plant outages and energy prices squeezed supply. Ready-mix concrete became about 5% dearer over the same period, a modest rise on paper but one that matters because concrete is poured into almost every structure. Not all lines are heading north. Contractors report discounts of roughly 5% on bitumen, mild steel sheet and PVC piping, commodities that benefited from weaker global demand. Overall, materials added just 1.4% to the annual tally, but the mosaic of hikes and dips is making it harder for small builders to lock in quotes that remain valid for more than a few weeks.

Regional disparities widen the gap

Higher costs do not hit the country evenly. In Lisbon, where demand for new apartments is strongest, a simple two-bedroom build can cost close to €1,500 per square metre, roughly half again what the same project commands in many interior districts. Porto comes next at about €1,000 per square metre, while parts of the Algarve face a premium driven by seasonal labour shortages and logistical surcharges. By contrast, inland municipalities such as Guarda, Bragança or Portalegre continue to offer construction budgets under €1,100 per square metre, helped by cheaper plots and lower transport costs. The divergent price maps mean households leaving metropolitan regions in search of affordability can still find relief, although the trade-off often involves longer commutes and thinner public services.

What it means for homebuyers and developers

For would-be owners, the combination of rising construction budgets and higher mortgage rates is squeezing purchasing power. A detached house that cost €200,000 to build in 2020 could now require an extra €30,000 just to cover labour and materials, not counting land. Developers, meanwhile, struggle to keep pre-sale contracts profitable. Some are inserting escalation clauses that pass at least part of any cost jump on to the buyer. Others postpone ground-breaking in the hope that material prices will stabilise, although the tight labour market offers little sign of relief. Financing costs also bite: as the European Central Bank holds rates at multi-year highs, carrying a land bank is more expensive, forcing smaller builders to seek joint-venture partners or exit the market.

Can policy and training cool the pressure?

Industry associations argue that the only sustainable way to tame cost inflation is to expand the workforce. They are lobbying for accelerated vocational programmes, tax incentives for apprenticeships and streamlined visas that attract foreign tradespeople. The government has signalled support, earmarking funds in the next Budget for revamped training centres and faster recognition of credentials earned abroad. In parallel, some municipalities are offering density bonuses and fee waivers to projects that commit to fixed sale prices, hoping to enlarge the stock of affordable homes. Still, executives caution that even perfect policy cannot conjure thousands of skilled workers overnight. Until supply catches up, expect labour to remain the chief driver of costs and September’s 4.8% uptick to feel less like a blip and more like the new normal.