Real Estate Denialism: A Look at Portugal's Housing Market

Understanding the Real Causes Behind Portugal's High Housing Prices 

This article is inspired by an opinion piece originally written in Portuguese by Paulo Caiado, President of APEMIP, the Association of Portuguese Real Estate Mediation Professionals. 

In Portugal, the high cost of housing is often attributed to speculation, but this view overlooks a crucial reality: the scarcity of available homes.

Blaming house prices solely on speculation is a form of denialism. It's akin to denying the existence of COVID-19 or climate change. While everyone is entitled to their opinion, denying the basic principles of market dynamics distorts the true causes of housing prices.

In real estate, when a commodity is scarce and demand is high, prices inevitably rise. This is not speculation; it's a fundamental economic principle.

Over the past 25 years, my extensive experience in the real estate industry has shown that sellers, regardless of their property's location—from the most expensive neighborhoods in Lisbon to the cheapest suburbs—always aim to achieve the highest possible price. No seller I've encountered has ever been willing to accept less than the market value, influenced by political or ideological beliefs. Without exception, everyone seeks the best return on their investment.

The idea that speculation drives up housing prices is frequently cited, but this notion is a denial of market realities. Speculation occurs when a seller demands a price far above what the market is willing to pay at that moment. However, when a scarce asset attracts multiple interested buyers, leading to higher prices, this is simply the market at work, not speculation.

In Portugal, the high cost of housing is primarily due to a shortage of homes. The factors that contribute to the value of a house are well known: land, project planning, administrative processes, construction materials, and labor. The longer this process takes, the more expensive the house becomes. If land is costly, this cost will be reflected in the price of the house. The government can influence land prices by making more land available for development.

Construction materials have been increasing in price over the past few decades, a trend that is likely to continue. Labor costs are also a significant factor, as workers justifiably demand fair wages. It is unrealistic to expect lower house prices at the expense of lower wages for construction workers. Additionally, taxes imposed on the entire construction process, determined by the state, further affect housing costs. Therefore, more affordable housing is possible only if the government intervenes.

The high housing prices in Portugal can also be attributed to a significant decline in new constructions. In the last decade, 700,000 fewer homes were built or rehabilitated compared to the previous decade. Despite a decrease in Portugal's native population, the country saw an influx of over 600,000 immigrants, essential for the economy, during the same period.

Blaming speculation for high housing prices is a denial of reality. When selling a house, everyone aims to get the best possible price, and the same holds true when buying. This is how the market operates. Recognizing this reality is crucial for identifying effective solutions to Portugal's housing crisis.