Low incomes and high house prices have long kept young people out of the housing market, but there is also a risk that a new measure to assist buyers will put more pressure on an already choked supply.
Young people in Portugal up to the age of 35 will soon be able to use a state guarantee to obtain a 100% mortgage when buying their first home.
The new measure is an addition to others designed by the government, such as the exemption from a municipal tax on the transfer of property and stamp duty, and is intended to help young people who struggle to enter the property market.
The law establishing the conditions for implementing this measure was published on 10 July, but its practical application is still dependent on its regulation, which should happen within 60 days.
Young people will be covered if they earn up to €5,800 gross per month and buy a house for a maximum of €450,000.
However, the plan already faces two major obstacles: the low incomes of most young people and a sharp rise in house prices.
“This guarantee may, in fact, help resolve some friction for some young people who are trying to access houses up to €450,000, young people up to and including 35 years old,” João Pereira dos Santos, economist and assistant professor at the Instituto Superior de Economia e Gestão, told Euronews.
“But it won’t solve all the problems nor the biggest problems affecting the younger generation when trying to access housing.”
Supply and demand
Two out of three young people earn less than €1,000 a month, and few banks will be willing to take the risk of granting them a loan.
Moreover, there is a short supply of affordable houses on such low incomes.
“From the end of 2022, the beginning of 2023, we’ve seen this gradual increase in supply, but it’s still far from reaching the levels of supply we had in 2020 or 2021,” João Braz, head of real estate analysis firm idealista/data Portugal, told Euronews.
“Therefore, this supply is increasing, but it is still insufficient to satisfy the demand that currently exists in the market.”
The governor of the Bank of Portugal, Mário Centeno, warned that caution is needed in implementing these measures in order to avoid additional pressure on the market until supply is adjusted.
Still, according to recent data published by the National Statistics Institute, supply in the Portuguese market increased by 27,248 homes in 2023, representing an increase of 9.2% on the previous year.
Pereira dos Santos argues that other supply-side measures could yet be considered.
“I’d like to see more measures that can act on the supply side, namely measures that could facilitate or understand what we can do to facilitate municipal licensing,” he said.
“We know very little about the waiting time it takes for each person trying to get a council licence to get their licence to go ahead. We know very little about why these waiting lists are so long. Anything that could be done to facilitate licensing, to facilitate construction, could be very important.”
The economist also says it would be important to look for areas that could be “rehabilitated and turned into housing, for example, for young university students.”
For now, the details of the regulations that will allow the measure to be implemented are unknown, but they must be made public by 11 September.