Another study alerts to Portugal’s ‘worsening housing crisis’
Portugal is one of the (very) few OECD (Organisation for Economic Cooperation and Development) countries failing to contain the explosion in house prices.
The country has been identified alongside Luxembourg, Germany and Holland – all of them nation’s with vastly superior salaries and career opportunities – in a new study, warning of a new acceleration in house prices.
With already one of the worst housing-affordability ratios in the OECD economies, such a scenario can only spell further heartache/ misery for Portuguese citizens, and put more focus on what can be done.
A study released before Christmas alluded to the fact that other countries have taken a much more proactive stance in heading off price increases. Some have even stopped sales to ‘outsiders’.
If this new study, published in the International Monetary Fund’s (IMF) Finance and Development magazine, is correct in its predictions, much more will need to be done to ensure Portugal is not headed towards a ‘housing bubble’.
Reports explain that the study, conducted by Enrique Martinez Garcia, an economist at the Dallas Federal Reserve, points to a ‘new global wave of price exuberance’ (meaning house price increases) similar to the one that preceded the 2008-2009 financial crisis.
“Despite regulatory efforts to limit speculative bubbles, in Portugal house prices continue to grow above fundamental market variables, such as disposable income”.
The analysis uses data from the Dallas Fed’s International House Price Database, which monitors signs of property ‘exuberance’ through the evolution of real prices and the price-to-income ratio.
These indicators point to a 55% increase in real house prices in Portugal since 2005, while per capita disposable income rose by just 9% in the same period.
Recent figures from the National Statistics Institute show that house prices in Portugal grew by 9.8% in the third quarter of 2023 compared to the previous year, reaching a new record.
The European Commission has also shown concern, warning that the disproportionate rise in prices in relation to incomes, driven by foreign investment and limited supply, requires ‘close monitoring’, quotes Jornal de Negócios in its article saying the IMF wants central banks to come up with rules to respond to what is happening.
The IMF emphasises that as the price-income ratio rises, access to finance is reduced, which in itself can limit demand – and cause a correction in prices. But current macro-prudential rules ‘may not be enough to prevent the risk of housing bubbles’ – thus there needs to be more robust international coordination, specific financial instruments for the housing sector, and attention to global capital flows.
Source: Jornal de Negócios/ IMF/ ZAP aeiou
