For starters, obtaining a taxpayer number—an essential first step for any investor or individual aiming to participate in the Portuguese economy—remains unnecessarily complex. This outdated process should symbolize an open invitation to invest, yet instead, it resembles a system that erects barriers where none should exist.

This is emblematic of a larger issue: Portugal’s economic policies, unfortunately, often prioritize immediate tax returns at the expense of long-term growth and inclusivity. Nowhere is this more apparent than in the country’s property taxation framework. Housing, a fundamental human right, is burdened with taxes at every stage of ownership, making it prohibitively expensive for all but the wealthiest individuals.

On a real estate purchase, the taxation journey begins with the Property Transfer Tax (IMT) and Stamp Duty (IS) levied upon purchase. The combined burden of these one-off taxes can reach nearly 9% for properties valued between €316,772 and €607,528, a rate that is among the highest in Europe. Once the property is purchased, owners are still required to pay the Annual Property Tax (IMI), which, on urban property, ranges from 0.3% to 0.45% of the property’s tax value. Finally, upon selling the property, if not reinvested for permanent housing, sellers face capital gains tax, which half can soar to a marginal rate of 48%. This system taxes individuals at every step: upon entry, during ownership, and upon exit.

The consequence of such a heavy tax burden is clear: housing in Portugal is increasingly unaffordable, especially for middle-class families and young professionals. These policies have created a housing market that serves the privileged few while marginalizing those who lack the financial resources to navigate this complex and costly system. It is no exaggeration to say that a critical reassessment of these taxes is urgently needed if Portugal is to address its housing crisis.

The challenges extend beyond ownership to the rental market, which has become a focus point for broader frustrations. In cities like Lisbon and Porto, rents have reached unsustainable levels, driven by a combination of demand, regulatory inefficiencies, and a lack of housing supply. Current rent control measures, while well-intentioned, have only exacerbated the problem. Safeguarding vulnerable citizens is vital, but blanket regulations that freeze pre-1990 habitational rents under the Urban Lease Regime have distorted the market, discouraging investment in rental properties and further reducing availability.

Moreover, Portugal’s vacant property problem remains unresolved. It is estimated that thousands of homes sit empty, where banks, insurance companies, or investment funds are waiting for the right time to invest. These vacant properties represent a wasted resource in a country grappling with housing shortages. Policymakers must take decisive action to identify these properties and create targeted incentives for their owners to place them on the market, whether through traditional rentals, local accommodation, or affordable housing initiatives tailored to municipal needs.

The Short Term Rental (Alojamento Local) regime also illustrates the tension between economic opportunity and political ideology. In recent years, leftist and center-left governments have implemented measures that restrict the growth of this sector, citing concerns about over-tourism and its impact on local communities. While some municipalities, such as Lisbon, may indeed suffer from an oversaturation of short-term rentals, other areas would benefit significantly from increased investment in local accommodation. Recent efforts to empower municipalities to regulate the sector offer a promising solution, allowing for a more balanced approach that considers local needs and capacities, but more effective measures are still necessary.

Adding to these complexities is the fate of Portugal’s once-lauded Golden Visa program, a residency-by-investment initiative that previously attracted substantial foreign capital. Over the past decade, this program contributed significantly to urban rehabilitation and real estate investment, driving economic growth in cities across the country. However, under pressure from some populist rhetoric and left-leaning ideology, the program has been progressively dismantled. Critics argue that the Golden Visa exacerbated the housing crisis by driving up property prices, but this oversimplifies the issue. Rather than eliminating the program’s real estate component, why not reform it to direct investment toward affordable housing projects or underserved regions? Such an approach could align the program’s objectives with broader social and economic goals, fostering inclusive growth rather than stifling it.

These missed opportunities are compounded by the high costs associated with new construction in Portugal. Developers face an array of taxes, fees, and bureaucratic hurdles that significantly inflate project costs. Chief among these is the Value Added Tax (VAT) on construction, currently generally set at an eye-watering 23%. Reducing this rate to 6% would provide immediate relief to developers, potentially lowering the final cost of new homes. However, such a measure must be carefully structured to ensure that the savings are passed on to buyers rather than absorbed into developer profits. One possible solution is to subject property sales to VAT, tying the reduced 6% rate to a requirement that final sale prices reflect the lower tax burden.

The housing crisis in Portugal is not merely a matter of supply and demand; it is a reflection of deeper structural issues within the country’s economic and political systems. Portugal remains a relatively poor and unproductive country, yet it continues to squander opportunities for growth under the guise of ideological purity. Successive governments, driven by leftist and center-left ideologies, have systematically undermined initiatives that could bring wealth and prosperity to the nation. The dismantling of the Golden Visa program, the erosion of urban rehabilitation incentives, and the excessive taxation of property are all emblematic of this short-sighted approach.

The path forward is clear but challenging. Policymakers must prioritize pragmatic solutions over ideological posturing, focusing on measures that attract investment, incentivize housing development, and make homes more affordable for all. Reducing construction VAT, reforming rental regulations, and revitalizing the Golden Visa program are essential first steps.

Written by Tomás Arantes e Oliveira, Senior Associate at CCA Law Firm - www.cca.law