The Market Seen from the Street: Housing Model for Young People.
Building for New Generations: The Housing Model for Young Adults
Part I - Analysis of the Housing Survey - What Are Young Adults Looking For?
The Government’s new housing strategy, "Building Portugal," introduces measures like exemptions from the Property Transfer Tax (IMT) and Stamp Duty for young people under 35 buying their first home. However, it is still too early to confirm (or refute) whether these measures will have a real and positive impact.
The real estate market has been one of the major concerns for younger generations in Portugal. Buying or renting a house, especially in major cities or coastal areas, has become increasingly challenging. One thing is certain: it is essential to deepen the debate on this issue and, more importantly, understand young people’s needs when choosing their first house.
This study, involving 267 participants, helps us better understand what young adults truly want and seek, as well as the challenges they face when looking for a place to live. With valuable input from André Casaca and Gonçalo Miguel, we conducted an open survey between August and September to understand the challenges faced by this generation. The findings formed the basis of a case study aimed at creating a Youth Housing Model that addresses the identified needs.
Focusing on housing dimensions, the study seeks to optimize space use, offering efficient architectural designs that maximize functionality without significantly increasing construction costs. This includes implementing innovative designs that make better use of available areas, catering to preferences for homes with outdoor spaces and convenient locations.
It is worth noting that this model keeps other challenges present in today’s real estate market constant, such as VAT on construction, existing regulations, and the lack of housing supply. By not changing these variables, the study aims to show that it is possible to improve housing accessibility for young people through solutions focused on design and area efficiency. Our goal is to provide viable options that reflect the real needs and economic capacities of young adults in Portugal, contributing to an easier transition to independent living and the realization of the dream of homeownership.
1. Who Are the Respondents?
Most of the respondents are between 24 and 29 years old (51%). There is also a significant presence of people aged 30 to 35 (18%), those over 35 (20%), and a smaller proportion of young people aged 18 to 23 (11%). These numbers indicate that we are primarily looking at young adults trying to take their first step in moving out of their parents’ home and finding a house of their own.
2. Buy or Rent?
One of the key questions we asked was whether participants had already looked for a home. More than half (56%) had looked to buy, while 27% had looked to rent. However, 17% have not yet taken this step, likely due to financial difficulties that many face. The preference for buying reflects the strong desire among Portuguese to own a home, even if circumstances aren’t always favorable, something that we believe is deeply rooted in Portuguese culture.
3. Family Composition and Number of Children
Most respondents (74%) do not have children, which aligns with the predominant age group of the participants. Only 12% have one child, 11% have two children, and a small percentage (3%) have three or more children. This data suggests that many are still delaying starting a family, possibly due to economic or professional factors.
In terms of household size, 58% live alone or with one other person, indicating a preference for small household sizes. About 36% live in households of 3 to 4 people, reflecting traditional nuclear families. Only 6% live in households with five or more members.
4. What Are the Barriers to Securing a Home?
Here, there were no major surprises: the biggest obstacle remains the price or rent of the house, a problem mentioned by 75% of respondents. Additionally, 14% find it difficult to obtain housing credit, an essential factor for those who want to buy. Location is another challenge, cited by 9%, and a small percentage (2%) refer to advance rent payments required for renting as an obstacle.
5. How Are They Living Currently?
44% of respondents still live with their parents or family members, a common situation among young adults in Portugal who often delay moving out due to economic difficulties. About 25% live in rented homes and 3% in shared housing, while 28% already own their homes. These numbers show a divided reality: while many manage to move toward independence, a large portion still depends on family support.
6. Housing Preferences
When we asked about preferences, the answer was clear: 83% want to own their own home and consider renting only a temporary solution. Those still living with their parents cite the need to save and financial inability to rent or buy as the main reasons. Those who choose to rent do so for flexibility and often because they are unable to buy a home right away.
7. How Much Do They Earn and How Much Can They Spend?
Regarding income, most participants (50%) earn between €10,200 and €18,000 annually, which corresponds to about €1,100 to €1,500 per month. These relatively low incomes justify the fact that 64% of respondents can only afford rent between €500 and €750. The difficulty in paying higher amounts is evident, which restricts the options for those looking for a place to live. Around 21% of respondents have an annual income between €18,900 and €24,000, while 18% earn over €30,000. In terms of housing expenses, 21% can afford between €751 and €950, and 15% can handle rents above €951.
8. What Is Most Important When Choosing a Home?
When it comes to choosing a home, location is the most important factor for 49% of people. In a country where proximity to work, schools, transportation, or even the beach can make all the difference, this isn’t surprising. Another key factor is the cost of rent or mortgage payments, with 28% of respondents indicating that the monthly budget is crucial in the final decision. Additionally, 16% place high importance on the availability of outdoor space, suggesting a growing demand for homes with gardens or balconies.
9. Where Do They Want to Live?
An interesting finding is that 33% of participants would like to live near the beach, which isn’t surprising in a country with a strong connection to the sea and well-known accessible beaches. Others prefer a consolidated urban area (26%) or a suburban area (18%), where better opportunities for space and value often exist. Some also prefer a quieter life in a rural area (15%), although this is the least chosen option, reflecting the disparity between the coastal and inland populations.
10. Type and Size of Homes
In terms of type, the preference is for T2 apartments (37%) and houses (34%), reflecting a desire for space and comfort. T3 or T4 homes are preferred by 25%, while T0 or T1 are chosen by only 5%, showing that despite economic challenges, young people seek larger homes for comfort or to prepare for family building in the future.
Regarding size, 29% of respondents prefer homes under 86m², 38% would like homes between 86m² and 120m², while 33% prefer larger homes over 120m². This desire for space often contrasts with the limited budgets of many young adults.
11. Future Intentions: Plans to Buy
The majority of respondents (65%) plan to buy a home within the next three years, showing that, despite economic challenges and high market prices, the dream of homeownership is still very present among young people. However, 35% have no plans to purchase a home, which may reflect economic uncertainties and the challenges posed by the real estate market.
What Should Be Built? (Based on Sample Data)
Based on the participants' preferences, some conclusions can be drawn about the type of housing that should be built in Portugal.
Focus on T2 and T3: Most participants prefer T2 (37%) and T3 or T4 apartments (25%), with a growing desire for houses (34%).
Areas Between 86m² and 120m²: A large portion (38%) seeks homes in this size range, and 33% are looking for homes over 120m², suggesting the need to provide sufficient space to meet the expectations of those who already have families or plan to start one.
Coastal or Urban Location: Knowing that 33% prefer living near the beach and 26% in a consolidated urban area, future construction should be oriented toward these areas, where demand is higher and where respondents believe their quality of life will be better.
Valued Outdoor Spaces: About 16% of respondents consider outdoor space important. This trend, possibly accelerated by the pandemic, highlights the need to include balconies, patios, or gardens in new constructions, especially in apartments.
The table below provides a detailed estimate of production costs, including due diligence, architectural and engineering projects, municipal fees, mid-range construction, supervision, management and administration, and real estate commissions. Additionally, property sale prices in various locations are compared, with the land price per square meter (€/m²) averaged for the analyzed area. The table also reflects the housing types and areas most favored by study participants.
Additionally, a simulation of monthly payments associated with bank loans was conducted, considering two financing scenarios: 100% over 40 years and 90% over 35 years, both with a 1% spread and a 3% Euribor rate.
To determine what young adults can realistically afford, we analyzed the average net income in Portugal, which is around 1,150 euros per month. Therefore, an average couple has a combined income of approximately 2,300 euros. According to recommendations from the Bank of Portugal, a maximum of 35% of monthly income should be allocated to mortgage payments, which equates to 805 euros per month for a couple and 402.5 euros for a single person.
The table also shows the preferred areas and corresponding property sale prices. Values highlighted in red indicate monthly payments that exceed 805 euros, signaling properties that may be financially unfeasible for most people.
Conclusion
The results we obtained reveal a significant contradiction between what young adults would like to have and what they can actually afford. Although they prefer larger homes, most can only manage modest rents of €500 to €750 per month, which greatly limits the options available in the current market, especially given the rise in construction and labor costs.
Another relevant aspect to consider is the evolution of family size. While in the 1960s the average number of family members in Portugal was around 4, reflecting a traditional family structure with large families and several children, the 2021 Census shows that the average has dropped to about 2.5 people per family. This shift reflects the country's demographic evolution, with more single-parent families and a growing number of childless couples. This makes the construction of smaller, more affordable homes a strategy aligned with the current demographic reality, where there is a reduction in the number of people per household.
In summary, the data analysis highlights a significant disparity between young adults' housing aspirations and their actual financial capacity. Although there is a strong desire for larger homes in prime locations, limited incomes severely restrict the available options. Recognizing this contradiction, it becomes imperative to explore solutions that reconcile young people's preferences with the current economic reality. Thus, in Part II, we propose a housing solution model that addresses this challenge, focusing on optimizing housing areas and adapting building types to the needs and financial possibilities of this generation.
Part II – Housing Solution Model
And what can people actually afford?
While the demand for housing grows, a clear contradiction emerges between what young adults want and what they can actually afford. Rising construction and labor costs have made the real estate market even less accessible for younger generations, raising significant questions about what is financially feasible.
Limited Average Income: The sample analyzed reveals that most respondents have an annual net income between €10,200 and €18,000, equivalent to €1,100 to €1,500 per month. This income immediately sets clear limits on what they can pay for housing.
Maximum Rent of €500 to €750: When looking at payment capacity, 64% of respondents say they can’t afford more than €500 to €750 per month in rent or mortgage payments. This amount aligns with their income, but places them in a vulnerable position in the real estate market, where affordable housing within this range is increasingly scarce, especially in the preferred locations of the participants.
The Space Preference Contradiction: A major contradiction arises when we compare payment capacity with the type of housing desired. While most respondents can only afford a rent of €500 to €750, nearly 71% prefer homes larger than 86m², with 33% wanting homes over 120m². This desire for larger homes reflects a demand for comfort and space, but financial constraints make these aspirations unfeasible. This contradiction highlights one of the biggest challenges young adults currently face in the real estate market: they want larger homes, but lack the purchasing power to afford them.
The Need to Shift Mindsets: This gap between what people can afford and what they desire has important implications. Young people need to align their housing expectations with the reality of their incomes. Smaller homes, such as T0, T1, or T2 units ranging from 40m² to 75m², may be a more viable solution for most, partly due to the demographic trend toward smaller families (from 4 people per household in 1960 to 2.5 people in 2021). If respondents want to continue living in coastal or urban areas, they may need to adjust their "dream home" concept to a more realistic version, where space is more compact but costs are more manageable and household upkeep is simpler. While four people once lived in T3 or T4 homes, today, two or three people can comfortably live in a T1+1 or T2. This shift does not mean sacrificing quality of life, but rather adapting to new economic and demographic realities.
As with the previous table, the following table compares production costs and property sale prices in different locations, considering more compact housing types and areas.
To assess the purchasing capacity of young people, we once again took into account the average net income in Portugal, estimated at €1,150 per person per month, or €2,300 for a couple, as well as the recommendations from the Bank of Portugal on monthly payment limits of €805 for a couple and €402.5 for a single person.
The table highlights properties with smaller areas than those most voted by participants, reflecting the need to adjust space expectations to financial capacity. Values highlighted in red indicate monthly payments that exceed the €805 limit, underscoring how, in many locations, properties with the desired areas may be out of reach for most young people, forcing them to consider smaller options in the short term to fit within their available budget.
Conclusion
The shift in mindset regarding more compact housing adjusted to the size of contemporary families will be crucial for this generation to sustainably enter the real estate market without sacrificing essential aspects such as location or basic needs (such as education or food). Sustainability in the construction of smaller apartments, with a smaller ecological footprint, thus becomes a priority, contributing to reducing environmental impact and optimizing available resources.
Moreover, in Portugal, it is less common, compared to other European countries, to hire interior designers, which may compromise the optimization of spaces in smaller apartments. Careful interior design is essential to maximize functionality and comfort, especially in compact homes. Investing in smart design solutions that make the most of every square meter becomes crucial, as does the inclusion of outdoor areas, which are more economical to build. Additionally, it is necessary to think of projects that include more amenities, such as common spaces and shared services, to compensate for the reduction of interior areas, offering a better quality of life at an affordable cost.
This approach offers a better quality of life, promoting a sense of community, and reduces individual costs, as the investment in shared services makes housing more accessible and sustainable in the long term.
This solution focuses solely on optimizing the layouts of residences. We acknowledge that there are other problems in the housing sector in Portugal, such as taxes, complex regulations, long wait times in approval processes at city councils, and a lack of adequate housing supply. These challenges remain present and significantly affect the real estate market. However, assuming that all these issues remain constant, we believe that the adoption of more compact and well-designed housing can be a significant step in helping young people achieve housing independence in a more realistic, sustainable, and affordable manner.
Kind regards,
Pedro Almeida
