Portugal Tops EU List for Most Overvalued Housing — Prices Estimated Over 30% Above Real Value

A new report from the European Commission concludes that Portugal currently faces the most inflated housing prices in the European Union. The study estimates that homes across the country are priced at roughly 30% above their actual market value, driven by mounting demand, limited new construction, and the continued influence of tourism. Despite early signs of housing corrections in other parts of Europe, Portugal’s property market remains overheated, reflecting deeper structural challenges in supply, affordability, and regulation.

The Commission’s analysis shows that property values across the EU have risen by about half over the past decade. In a handful of countries — including Portugal, Hungary, Lithuania, and the Czech Republic — prices have climbed by more than double their 2014 levels. Portugal stands out as one of the few nations where housing overvaluation still increased into 2024, defying the general cooling trend seen elsewhere.

According to the findings, Portugal’s housing boom stems from a combination of persistent investment demand, low availability of public housing, and sluggish building activity. Only around two percent of homes in the country are owned or managed by public authorities — among the lowest shares in Europe — leaving affordability largely determined by private market dynamics. Rising borrowing costs and renewed buying from wealthier households and institutional investors have also reinforced the upward momentum in prices.

Tourism continues to play a central role in shaping Portugal’s housing pressures. The report identifies the country as the EU member where tourism has the strongest impact on property values, particularly in Lisbon and Porto. The rapid spread of short-term rental platforms such as Airbnb has encouraged many property owners to convert long-term rentals into holiday accommodations. This shift has reduced the number of permanent homes available, pushing rents higher in neighborhoods popular with visitors.

On the supply side, construction activity has failed to keep up with surging demand. The Commission notes that building approvals often take well over half a year to complete in Portugal — among the lengthiest processes in the EU — due to complex licensing systems and regulatory hurdles. The prevalence of small construction companies and limited productivity growth have further constrained the sector’s ability to deliver new housing at scale.

Institutional investors such as insurance firms and pension funds have increasingly entered Portugal’s property market, adding competitive pressure on prices. Years of ultra-low interest rates made real estate an attractive long-term asset, concentrating ownership and intensifying demand for urban housing stock.

Over the past ten years, housing costs in Portugal have increased roughly twice as fast as household incomes, leaving many families struggling to keep up. The ratio of home prices to earnings is now more than 15% higher than a decade ago. In Lisbon, rents for a modest two-bedroom apartment can absorb over three-quarters of a typical tenant’s income, one of the heaviest burdens in Europe.

The European Commission warns that without comprehensive reforms to speed up construction approvals, expand affordable and public housing, and temper speculative demand, the affordability gap is likely to widen further. Strengthening housing supply and improving transparency in investment activity are seen as key steps toward restoring balance in Portugal’s housing market.