Navigating the High Cost of Living and Renting in Portugal
Eres Relocation Portugal
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The rental market in Portugal has been under increasing pressure, with house rents rising month after month, reaching a five-year high in June 2024. This persistent increase is primarily due to the insufficient supply of affordable rental homes to meet the high demand across the country. In response to this housing access crisis, the Government has introduced several measures, such as expanding rent support and the Porta 65 Jovem program.
The Escalation of Rental Market Tensions
Over the past five years, the trajectory of house rents in Portugal has fluctuated, even declining during several months in 2020 and 2021 due to the COVID-19 pandemic, which impacted housing mobility. However, the overall trend has been a clear upward one. In June 2019, the median rental cost was €11.4 per square meter, which surged by 41% to €16.2 per square meter by June 2024. This figure marks the highest in five years and sets a new record in the statistical data series dating back to 2015.
This steep rise in rental costs is unsurprising, considering the widening gap between the supply of and demand for rental homes since 2019. Data reveals that demand for rental homes surged by 165% from the first quarter of 2019 to the same period in 2024, while housing supply increased by only 36%. According to experts, factors such as the risks associated with renting, legislative instability, and high rental taxes have hindered the introduction of more rental properties to the market.
Lisbon and Porto: Case Studies of Rising Demand and Insufficient Supply
Both Lisbon and Porto have seen a dramatic rise in demand for rental homes over the past five years, driven by the pandemic and economic shifts due to the war in Ukraine. Consequently, rental prices in these major urban centers have also skyrocketed. Here’s how the rental markets in Lisbon and Porto have evolved during this period:
Key Metrics from 2019 to 2024: Rent, Supply, and Demand Trends
Recent Market Developments: Trends in 2023-2024
Over the past year, market confidence has been shaken by high inflation and rising mortgage interest rates. This uncertainty led to a 36% drop in demand for rental homes from early 2023 to the first few months of this year. Despite this, the increased rental supply (up 81%) could not curb rent hikes, with median rents rising 12% over the year to €16.2 per square meter in June.
This scenario has heightened the rental burden on families, with the rental effort rate increasing from 71% in early 2023 to 81% in early 2024. In Lisbon, demand fell by 48% year-over-year, doubling the available rental stock but still resulting in an 8% rent increase to €21.5 per square meter in June. In Porto, the 36% drop in demand and doubled supply led to a 13% rent increase to €17.2 per square meter.
Rental Prices Across Major Cities and Districts
The second quarter of 2024 saw rental prices rise in nine of the 14 major district capitals, with Santarém leading at 7.2%, followed by Faro at 6.4%, and évora at 6%. Conversely, prices fell in Coimbra and Viseu and remained stable in Setúbal, Lisbon, and Braga.
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The Cost of Living in Portugal: A Rising Concern
The consultancy firm Mercer has just released its "Cost of Living" ranking for 2024. This ranking, as the name suggests, compares the cost of living for expats in 226 cities worldwide, analyzing the comparative prices of over 200 categories such as transportation, food, housing, and leisure activities, among others.
According to the 2024 edition of the "Cost of Living" ranking, Lisbon is the 100th most expensive city in the world for expatriates, having risen 17 positions compared to the previous year. This indicates “an increase in the cost of living for those who decide to come and work in the Portuguese capital,” the report explains. In the European context, Lisbon occupies the 39th position.
"Companies may reconsider the compensation associated with mobility, possibly including or increasing housing support," says Tiago Borges, Career Business Leader at Mercer Portugal.
“The challenges of the cost of living significantly impact the mobility of multinational companies and their employees,” says Tiago Borges, Career Business Leader at Mercer Portugal. He believes that, therefore, “it is important for organizations to stay aware of trends and take employee feedback into account so they can effectively manage the impact of these issues,” he stated in the document.
“The increase in the cost of living leads employees to rethink routines and reduce expenses, potentially requiring extra effort to meet their basic needs,” he adds. “Given these challenges, companies may reconsider the compensation associated with mobility, possibly including or increasing housing support, providing support services, or exploring alternative strategies for attracting and retaining talent.”
The rising cost of housing in various cities has made mobility a challenge for organizations. Inflation is another factor reducing purchasing power and putting pressure on compensation policies. “This situation is likely to make it harder to attract and retain key talent, potentially increasing the costs of benefits and salaries, as well as operational costs, creating limitations on employee mobility,” the consultancy firm warns.
The other face of Portugal
However the many challenges Portugal faces, the country has managed to stand out in the annual ranking of the 50 best cities in the world for 2024, published by Time Out Global, which asks the residents of these places to tell it like it is to live, work, and have fun in them. Porto occupies 10th place in the table and Lisbon 13th.
The Time Out list is topped by New York, followed by Cape Town, Berlin, London, and Madrid. The two Portuguese cities in the spotlight appear ahead of several famous destinations, such as Los Angeles, Amsterdam, Singapore, Miami, Beijing, Dubai, Sydney, San Francisco, Barcelona, and Seoul.
Some prefer to highlight the bustling neighborhoods, affordable food and drink, or a powerful selection of things to do, from art galleries and museums to live music and theater. Others value things like the happiness of the residents, access to green spaces, and a sense of community. And it's on the basis of all these criteria that the international publication draws up its annual global ranking of the world's best cities.
Conclusion: Navigating the Challenging Rental Market
Eres Relocation can assist with renting a home in Portugal, a process that remains a significant challenge due to the persistent supply-demand imbalance and rising rental costs. Despite government interventions and economic shifts, the rental market continues to exhibit upward price trends. For prospective tenants, staying informed about market dynamics and government policies is crucial in navigating this challenging landscape. Stay updated with the latest real estate information and data reports through our daily and weekly newsletters.