Increase in Permits for Residential Building and Renovation by 15.7% by May
Portugal's housing sector is experiencing a surge in activity and policy shifts, aimed at addressing long-standing supply shortages, high prices, and affordability challenges, particularly for young buyers.
In the first half of 2025, the number of licenses issued for the construction and rehabilitation of residential buildings increased by 18.1% year-on-year, reflecting a clear acceleration in approved housing projects compared to previous years. This growth is a direct result of the April 2024 launch of the *Construir Portugal* plan, which was further reinforced in June 2025 to boost housing supply.
The plan emphasizes legislative simplification, encouraging both public and private construction, promoting youth housing, and restoring confidence in the rental market. A new public funding model under the *1.º Direito* scheme aims to add 33,000 homes, with 70% coming from rehabilitation rather than new builds, highlighting a strategic shift toward renovating existing properties as a faster, potentially more affordable way to increase housing stock.
There has been a rapid uptake of tax exemptions for young buyers under 35, with the number nearly doubling in less than three months, suggesting that targeted incentives are having a measurable, though still early, impact on homeownership among young adults.
Housing prices in Portugal saw a 16.3% year-on-year increase at the start of 2025, the highest on record, underscoring the urgency of increasing supply. Local control over short-term rentals, restored in late 2024, offers potential to redirect units to long-term use, although the full impact on supply remains to be seen.
In the Algarve region, 1,713 new housing units were licensed in the 12 months ending in May 2025, representing a 5% increase compared to the same period last year. The apartment segment experienced a 21.1% increase in median housing value in May, while single-family homes registered a 10.4% increase.
Despite the growth in construction activity, construction costs remain elevated, with costs overall being 3.7% higher than the same period in 2024. However, there was a slight easing in cost pressures, with a 0.1 percentage point decrease in construction costs for new housing in April 2025 compared to the previous month.
The interest rate for housing credit stood at 3.57% in May, a 99 basis point reduction compared to the same period last year, providing some relief to homebuyers. The amount of new housing credit granted by banks, excluding renegotiations, increased by 39.6% between January and May, to 9.124 million euros.
Cement consumption in the national market totaled 1,654 thousand tons, a 2% decrease compared to the same period last year, suggesting a moderation in construction activity. However, it's important to note that this decrease could also be due to other factors, such as changes in construction techniques or the prioritization of rehabilitation over new builds.
In conclusion, Portugal is witnessing a clear uptick in housing licenses and construction activity in 2025, spurred by government intervention to simplify processes, incentivize rehabilitation, and target support toward young buyers. While the supply response is gaining momentum, especially in rehabilitation, construction costs and prices remain high. Local control over short-term rentals and ongoing policy adjustments offer additional levers to balance the market, but full resolution of Portugal’s housing challenges will require sustained effort and further expansion of the housing stock across all tenures.
(Also Read: The Euribor rate fell at three months, but rose at six and twelve months, indicating a mixed outlook for short-term interest rates in Portugal.)
- What about the impact on Portugal's real-estate market with the rising interest in investing in financing business opportunities in the surging housing sector, following the implementation of the "Construir Portugal" plan?
- Considering the surge in activity and policy shifts in Portugal's housing sector, with a focus on youth housing and legislative simplification, could this potentially foster new opportunities for real-estate investing in the finance sector?
