Portugal's Housing Shortage Is Larger Than It Looks

Portugal's housing debate has become increasingly focused on demand and its impact on prices.

Foreign buyers, immigration, tourism, short-term rentals and tax incentives have all been identified as contributors to rising prices and declining affordability. Each has played a role, particularly in specific locations and segments of the market.

But a new estimate puts the scale of Portugal's housing imbalance into a rather different perspective.

The Missing 300,000 Homes

Analysis by the Bank of Spain estimates that Portugal accumulated a housing shortfall of approximately 300,000 homes between 2021 and 2025.

That is equivalent to around 6.6% of all Portuguese households.

The comparison with the rest of Europe is particularly striking. The estimated equivalent shortfall across the euro area was approximately 0.5% of households.

The estimate measures the gap that emerged as the formation of new households outpaced the housing supply required to accommodate them.

Seen in those terms, Portugal's housing problem looks rather different.

It is not simply that demand became unusually strong. The residential market proved unable to produce sufficient housing to accommodate the number of households being created.

How Did Such a Large Gap Develop?

Portugal is building more homes than it was a decade ago, but that recovery started from an exceptionally low base.

Following the financial and sovereign-debt crises, residential construction fell sharply. Companies disappeared, skilled workers left the sector and development capacity contracted.

Rebuilding that capacity is taking time.

At the same time, the population has grown, household formation has increased and demand has become concentrated in the country's economically strongest and most internationally connected areas.

Construction has struggled to respond at the same speed.

The OECD has repeatedly identified some of the reasons: rising construction costs, shortages of skilled labour, limited availability of developable land and lengthy and sometimes unpredictable planning and licensing procedures.

In Lisbon, where land is already scarce and expensive, those constraints become particularly significant.

Why This Changes the Demand Debate

None of this means that foreign demand, immigration, tourism or short-term accommodation are irrelevant.

They are not.

International buyers can materially affect particular neighbourhoods and price segments. As discussed in Lisbon Is Attracting a Different Type of International Buyer, both the profile of international buyers and their motivations are evolving. Immigration increases the number of households requiring accommodation. Tourism can compete with residential uses for existing housing stock.

But there is an important distinction between adding demand to a functioning housing market and adding demand to one that is already unable to produce enough homes.

The 300,000-home estimate suggests Portugal has increasingly been experiencing the latter.

That matters because restricting one source of demand may relieve pressure in a particular segment without resolving the underlying imbalance.

The debate therefore becomes less about identifying a single group of buyers responsible for rising prices and more about understanding why housing supply has been so slow to respond to a growing population and changing patterns of demand.

More Construction Does Not Necessarily Mean Affordable Housing

There is another apparent contradiction.

Lisbon has seen substantial residential development in recent years, yet much of the new housing entering the market remains expensive.

That is not necessarily evidence that developers are ignoring the broader housing shortage.

It partly reflects the economics of building.

When land is expensive, construction costs are high and obtaining approval can take years, developers naturally gravitate towards projects capable of absorbing those costs.

That tends to favour the upper end of the market.

The result is that a city can simultaneously experience considerable residential development and a severe shortage of housing affordable to middle-income households.

Solving the latter therefore requires more than simply encouraging construction. It also requires making housing less expensive and less complicated to produce.

There Are Signs of Improvement

The supply response is beginning to strengthen.

INE estimates that approximately 30,400 dwellings were completed in Portugal in 2025, while almost 48,900 homes were licensed.

The Bank of Portugal has also indicated that new housing construction broadly kept pace with household formation during 2025.

If sustained, that would represent an important change.

But it does not eliminate the accumulated deficit.

Even significantly higher levels of construction would take years to absorb a shortage measured in hundreds of thousands of homes.

That helps explain why Portugal's housing market can remain surprisingly resilient even when economic conditions become less favourable or transaction volumes weaken.

What This Means for Buyers

For residential buyers, the distinction between a cyclical slowdown and a structural shortage is important.

Higher financing costs, weaker economic growth or reduced demand can slow transactions and create negotiating opportunities.

Individual properties can certainly be overpriced. Some sellers will eventually have to adjust expectations. As explored in Lisbon Is No Longer One Market, different neighbourhoods and property types can behave very differently.

But fewer transactions do not necessarily mean that significantly more housing has suddenly become available.

This is particularly relevant in Lisbon and Cascais, where the shortage of desirable properties can be even more pronounced than national statistics suggest.

A buyer therefore needs to distinguish between a property that is struggling to sell and a market in which good properties remain structurally scarce. They are not the same thing.

This distinction is also consistent with the increasing selectivity discussed in Lisbon's Prime Residential Market Is Becoming More Selective: slower transaction volumes can coexist with continued competition for the best homes.

Looking Beyond the Headlines

Portugal's housing affordability problem has many causes, and no single policy will resolve it.

Demand-side measures can affect individual segments. Changes to taxation, immigration policy, tourism regulation or incentives for international buyers will inevitably influence behaviour.

But the scale of Portugal's accumulated housing deficit suggests that the longer-term solution ultimately depends on increasing the amount of housing available where people actually want and need to live.

That requires greater construction capacity, more predictable planning, viable development economics and better use of existing housing stock.

The latest evidence therefore changes the perspective from which Portugal's housing debate should perhaps be viewed.

The question is not simply who is buying Portugal's homes.

It is whether Portugal can build enough of them.

Sources

• Bank of Spain analysis, as reported by the Financial Times, August 2026• OECD, Economic Surveys: Portugal 2026• Instituto Nacional de Estatística (INE), Estatísticas da Construção e Habitação 2025• Banco de Portugal, housing-market and financial-stability analysis