Portugal Risks Losing EU Housing Funds. Funding without reform will not fix the market

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Portugal has been handed what developers describe as a historic opportunity through the European Affordable Housing Plan. Yet the Portuguese Association of Real Estate Developers and Investors (APPII) warns that without structural reforms, the country may fail to absorb the funds and further entrench its position as one of Europe’s most unbalanced housing markets.

Why absorption risk is rising

According to APPII, the main constraint is not a lack of projects or capital, but the inability of existing systems to deliver housing at scale. Fragmented land policy, slow licensing, and rigid taxation frameworks threaten to turn European funding into an untapped resource. Without reform, financial support risks inflating prices rather than expanding supply.

Licensing delays as the core bottleneck

Developers argue that accelerating and standardizing permitting is essential. Digital one-stop platforms, predictable timelines, and the ability to proceed under tacit approval are seen as critical tools to restore construction momentum. Without these changes, supply growth will remain structurally constrained.

Tax structure undermines affordability goals

APPII has also called for applying a reduced 6% VAT rate to affordable housing projects. Rising construction costs and the existing tax burden leave many developments financially fragile, even with EU backing. Without fiscal adjustment, the economics of affordable housing remain misaligned with policy goals.

A strategy beyond political cycles

The association stresses the need for a long-term housing strategy insulated from electoral cycles and greater use of public land for affordable developments. Absent this, European initiatives risk becoming fragmented interventions rather than a coherent response to a systemic shortage.

Portugal as a case study of Europe’s housing emergency

The European Commission estimates that Portuguese house prices are overvalued by around 25%, making it the most overheated market in the EU. Across the Union, house prices have risen by an average of 60% since 2015, while residential building permits have fallen by roughly 22% since 2011. At the same time, short-term rentals now account for up to 20% of housing stock in some regions, intensifying supply pressure.

A narrowing window of opportunity

APPII warns that recognizing housing as a European emergency does not guarantee resolution. Without faster construction, lower costs, and institutional reform, EU funds may merely cement elevated prices. In that scenario, social tensions will deepen and investor confidence in the market’s long-term stability will erode.

As reported by experts at International Investment, APPII’s warning highlights a structural risk for Portugal: European housing funds cannot substitute for reforms. Unless land use, licensing, and taxation are overhauled, Portugal may miss a rare financing window and further destabilize its housing market.