The Market Seen from the Street: Land Law - what changes and how it could transform the Real Estate sector
The Housing Crisis in Portugal: A New Law to Address the Problem
The housing crisis has been one of the most debated topics in Portugal in recent years. With increasingly high prices and limited supply, the difficulty in finding affordable housing has led the Government to intervene in the market. The latest measure is the amendment to the Land Law, aiming to make land reclassification more flexible to increase housing supply.
The Government approved an amendment to the Legal Framework for Territorial Management Instruments (RJIGT). Decree-Law 117/2024, published on December 30th, introduces a special land reclassification regime, allowing rural land to be transformed into urban land, provided that 70% of the above-ground construction area is designated for public housing or moderately priced housing. This concept differs from "controlled-cost housing" as it aims to cover the middle class by setting maximum values based on local and national median market prices.
What were the main reasons for changing the Land Law?
The main motivation behind this amendment was to increase the supply of urban land for housing, making it easier for the middle class — a segment facing enormous difficulties, especially in major cities like Lisbon and Porto — to access housing. The Government argues that the shortage of urban land directly impacts housing costs and that easing land reclassification can help lower these prices. However, its effectiveness may vary depending on the level of supervision and regulation enforced.
How is this expected to influence land and housing prices?
If well-regulated and if prices align with the average household income, the law could help alleviate the issue. However, without strict control mechanisms, there's a risk that properties might end up being acquired by investors and resold at higher prices, limiting access for those who need it most.
Recent studies indicate that the average income of Portuguese households has not kept pace with the rise in housing prices in recent years. Between 2015 and 2023, housing prices increased by more than 80%, while salaries rose by only 20% over the same period. Thus, if there isn’t a clear cap on the prices of moderately priced housing, many families will remain unable to afford a home, especially in major cities.
How much could "moderately priced housing" cost?
The concept of moderately priced housing will be defined based on local and national median market prices. To get a practical idea of what this might represent:
In 2023, the average selling price of a property in Lisbon was €5,000/m². In Porto, it was €3,500/m².
Since the Government set maximum limits for moderately priced housing at 20% below the average market price, based on 2023 data, under the new law, the average sale prices of a property would be €4,000/m² in Lisbon and €2,800/m² in Porto.
The big challenge will be ensuring these prices are truly affordable for the middle class, whose incomes remain well below the European average.
What land planning issues does this law aim to solve?
The law also seeks to address some structural issues in land planning, such as the shortage of land for housing, bureaucratic hurdles in land reclassification, and territorial imbalances. Real estate pressure continues to rise in major urban centers, while many peripheral areas remain underutilized or even abandoned. By granting municipalities more autonomy to reclassify land, the goal is to speed up processes and increase the supply of affordable housing. However, this decentralization could also create inequalities between municipalities, depending on how each one manages this new responsibility.
Will the 70% requirement for affordable housing ensure lower prices?
The requirement that 70% of construction be allocated to affordable housing raises doubts about its true effectiveness. Everything will depend on the exact definition of "affordable housing" and how prices are controlled. If there are no clear restrictions on resale, units initially sold at affordable prices could quickly be resold at market rates, canceling the social impact of the measure.
Other countries, such as the Netherlands and Germany, have mechanisms that limit the resale and rental of such housing to ensure long-term affordability.
Who will be responsible for overseeing compliance with the new rules?
The enforcement of this new regime will mainly fall to municipalities, but doubts remain about their technical capacity and resources to manage the process fairly. Larger cities like Lisbon and Porto have well-structured and more robust urban planning departments, but smaller municipalities may face difficulties.
Should a national monitoring entity be created to ensure that municipal decisions follow sustainable planning criteria?
What are the biggest risks involved?
One of the biggest risks identified is unregulated urban sprawl if the law isn’t properly controlled. However, the legislation maintains the prohibition of construction in protected areas and high-value agricultural soils (Class A and B), as well as in risk zones (areas prone to floods, fires, and coastal erosion) and along the coastline, beaches, dunes, and riverbanks.
Another significant concern is what will happen to reclassified lands that aren’t developed within the established deadlines. The law states that in such cases, the original classification can be reverted. Still, monitoring this process will be essential to prevent speculative practices. The risk of benefiting only landowners and real estate developers is one of the main criticisms of the new law, especially because there wasn’t a broad public consultation before its approval.
Conclusion
The amendment to the Land Law is an ambitious attempt to address the housing shortage and make housing more accessible to the middle class. However, the success of the measure will largely depend on its implementation and the capacity for oversight. Without effective control mechanisms, this reform will not achieve its goals.
On the one hand, this law aims to democratize access to housing, but on the other hand, it presents serious challenges to urban planning and territorial sustainability. Will it be enough to solve the housing crisis, or will it introduce new difficulties?
I hope to contribute to the debate on this important issue. Feel free to comment and share new ideas!
Best regards,
Gonçalo Miguel
