“The Market Seen From the Street”: Housing Politics
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On February 16, 2023 I had the opportunity to read a document with the title "MORE HOUSING".
I was extremely curious to understand its contents. I confess that I expected 300 explanatory pages when I saw the title. It´s extremely important to discuss the Housing subject due to the reality that Portugal lives this days. What is this reality? There is a lack of houses that meet people's needs.
Whether to buy or to rent, there is a shortage of houses. Demand is much higher than supply. As a result, sales prices and rents are "skyrocketing". This rise also means that the existing supply is absorbed by the existing demand . Whether the demand is national or international is another discussion.
However this is a worldwide problem. We are witnessing a process called GLOBALIZATION. Portugal is not an isolated case. The difference between our country and others is, in my "uninformed" opinion, the average income of the people. In our beautiful Portugal, the average income is lower.
But then, let's get to the point. Document "More Housing" . I was even more excited when I saw that on the bottom of the cover it said Portuguese Republic (I immediately thought, "I will read this with all my attention"). And so it was.
The goals seemed balanced to me. The worst came next.
1. Increase the supply of housing properties. - What was my first thought? "How much are we going to increase? In how long?"
Proposed Solutions:
Converting Commercial & Services properties into Residential. - Where? Urban planning it´s prepared for this reality? Does the Government assume the role of a Developer? There is no need for commercial & services properties?
Bringing properties owned by the Government to the market, under Housing Development Contracts (Affordable Housing)- Interesting. How to "control costs"? Forcing suppliers to sign contracts below the actual prices and the extra work will double the expected and contracted cost?
2. Simplify licensing processes. - What was my first thought? "How and what are the deadlines?"
Proposed Solutions:
Licensing with Professionals (Architects, Engineers, etc) Liability Term . - Are the projects automatically valid as long as the Designers take responsibility? And the utilization licenses? The same thing?
Late payment interest for non-compliance with licensing deadlines - What are the deadlines? Who is responsible for non-compliance? Isn't the term of responsibility enough for licensing?
3. Increase the number of houses on the rental market. Strengthen landlords' confidence. Increase Public Supply. Promote Affordable Rents; What was my first thought? "What is the difference between increasing the number of housing properties and increasing the number of homes on the rental market? Shouldn't the 3rd goal fall under the 1st goal? How many houses? Will the landlords be more protected? How are affordable rents defined? How do you balance affordable rents with property values?
Proposed Solutions:
Government rents to sublease. - The State rents for 10 to sublease for 5? Who pays this "loss"? Does the State have the know-how to do Property Management? We look for all their Portefolio and it´s easy to understand the lack of management.
State guarantees payment after 3 months of default (either collect, support or evict) - But wasn't the state going to protect families? Landlord families or tenant families? Or both?
Exemptions from capital gains on property sales to the state. - How does the state finance itself? Is it not with taxes? Does the State buy at market value?
Funding municipalities to carry out coercive construction works. - On state-owned properties? Or on private property? Expropriation "under the hood"?
Encouraging the transference from Local Accomodation Houses to normal Housing - Incentives or obligations? Are we defending the tenant family and penalizing the landlord family?
Mandatory leasing of vacant houses. - Government houses? Or private ones? They do coercive construction works and force you to rent? The state "Takes Possession of the property" and "arbitrates" how to make the property management? What about taxes?
Affordable Rent Tax Exemption. - Does "proposed" tax exemption allow the same income to the Landlord that he would get on the free market?
4. Fight Speculation. - What was my first thought? "What does speculation mean? How to counteract it?"
Proposed Solutions:
End of Gold Visas. - What is the impact of the Gold Visas on speculation? How will this measure allow an increase in the housing supply?
Guaranteed Fair Rent in new contracts. - What does fair rent mean? Isn't it the rent that the market pays? The state sold the National Electricity Company. What is the fair electricity bill? We are going to the restaurant to eat codfish with chickpeas. What is the fair price of the dish?
5. Protecting Families. - What was my first thought? "Which families? Are they going to ease the tax burden?"
Proposed Solutions:
Exemption of capital gains to amortize own and descendants mortgages ? In fact, how does this measure protect families?
Mandatory requirement for banks to offer fixed rate - Fantastic! 1% or 10%?
Protection in interest rate hikes - Does the state "pay" the differential between the "set" fixed rate and the market hikes that may happen ? Or will the government regulate the European Central Bank?
Reading is good exercise! It is what we learn as children and continue to hear as adults. In this case, I can say that reading this document wasn´t so funny. I can't understand the logic. It's like a story where the State assumes the role of D. Sebastião and appears in a foggy dawn to solve the Housing problem in Portugal. What are the bad news?
The Government does not specify how the proposed solutions will achieve their goals. In my opinion, the proposed solution will create bigger challenges. I do not "see" real improvements.
Let's see why:
We have an inefficient and unproductive economy and an unaffordable public debt. The Social Security System is in deficit. This problem it´s becoming bigger due to the aging of the population. This being said, how will the Government Fund the "proposed solutions"? Did they went to the Capital Markets and find a Mega Hedge Fund that injects capital at 0 cost?
It seems to me that the answer is: "THE STATE IS FINANCED BY ITS OWN TAXES", . Will have to increase the tax burden on people and companies. However, "offering tax exemptions" for those who want to put their assets under Government Management. We will also be able to sell to the state, I forgot. At what price and how it will be determined, it´s another challenge.
With the Economy uncertainty that we observe over the markets, the Portuguese Government takes on a preponderant role, creating more uncertainty and doubts for all the "Stakeholders" in the National Real Estate Market (those who are already here and those who intend to enter) who are thinking abouteffective solutions to minimize the current challenges (which will tend to get worse in the future).
After the latest "Chair Dances" in the Portuguese Government, which offered a fantastic calling card of our Country's organization, here we have shot ourselves in both feet before starting an important "Marathon". The Economy does not seem to be moving in an upward direction. It is necessary to attract investment. We need to make the country more productive and competitive.
In short, reading the "package" of proposed solutions in the "MORE HOUSING" document is like going to the Cinema to see a horror movie that we happen to have read the review and know that the ending will not be "happy".
I am trying to understand what´s the real Purpose of our Government . Creating Real Housing Policies that intend to "defend families"? The "Housing Polices" just have political goals? Or it´s a real assault on Private Property?
I would like to invite anyone who can enlighten me better to have a cup of coffee.
See you soon,
André Casaca
