Is housing becoming less affordable? A study of affordability in the Portuguese housing market

Abstract

PurposeFrom the perspective of housing affordability, Portugal is an interesting case study, considering that Portugal ranks 5th in terms of price-to-income ratio and has experienced, since 2015, a significant increase in real estate prices.Design/methodology/approachThe provision of housing is a critical social development factor. With the growing worldwide urbanization and the demand pressure over real estate in many cities, the problem of affordability has gained increase attention by policy makers. Housing affordability is hardly a new topic from a literature perspective, but the recent post-pandemic worldwide inflation growth has re-centered affordability as key topic in the housing agenda. This paper provides a comprehensive overview on past literature and a detailed analysis on the Portuguese market at the municipal level, by analyzing the changes in housing affordability in recent years.FindingsDespite this growth, overall, affordability has improved. The study also shows the importance of municipal-level analysis, given the significant geographical differences. The authors' study confirms that many municipalities, outside metropolitan areas, exhibit low levels of affordability. Nevertheless, markets with higher average real estate values tend to exhibit even lower affordability, outpacing the higher levels of income.Originality/valuePrevious studies have focused on affordability issues on a national or highly aggregated level or focusing only on the two largest metropolitan areas in the country. This paper provides a deeper understanding on the inequalities of housing affordability between Portuguese municipalities.