The proposals submitted by the Government to Parliament "have positive effects, but are insufficient" to solve the housing crisis, considers the vice-president of the Lisbon Tenants Association (AIL), Luís Mendes, in statements to the Lusa news agency. "These are measures that could unlock the rental market, if they have the support of landlords, but they are poorly structured to contain the housing crisis. They should have more scope and a more structural character," he said.

By establishing tax benefits for the sale of homes up to €648,000, or for rentals up to €2,300 per month, the government's legislative package "covers 95% of the market," but it may end up being "an invitation" for landlords to increase rents to values ​​close to the ceiling that the executive branch defined as moderate rent.

The president believes that reducing the income tax rate on rentals from 25% to 10% is not enough to end informality in the sector. "Without oversight, everything that is done may not produce effects," he adds. In addition to creating a rental registry, Luís Mendes suggests an inventory of public property with residential potential, so that it can be placed on the market at controlled costs.

“These two measures are fundamental to combating the housing crisis. New construction alone won't solve the problem. The periods when the most construction occurred in Portugal were also those when sales prices rose the most, because access to bank credit was easier,” he adds.

Price controls

Therefore, he also advocates “some price control in the most sought-after areas,” so that the value of rents does not exceed one-third of the average income per inhabitant, similar to what he claims is being done in other countries.

“Contrary to what neoliberal thinking says, more construction will not lower prices, because they depend on the cost of land, which is high, and the cost of labour, which is scarce,” he points out. “As a geographer, I usually say that there are three factors with a lot of weight in price formation: location, location, location,” he concludes.

The proposals submitted by the Government to the Assembly of the Republic correspond to a legislative authorization that allows Luís Montenegro's executive to amend the VAT Code, the Personal Income Tax Code, the Tax Benefits Statute, and the Property Transfer Tax Code with the aim of promoting the supply of housing at lower prices.

The proposed law to reduce VAT on the construction of houses for sale or rent at moderate prices gives the tax authorities 150 days to refund the difference between 23% and 6% VAT if owners build or rehabilitate properties intended for housing and sell the house for up to €648,000 or rent the property for a monthly rent not exceeding €2,300.

Capital gains

With the aim of increasing the housing supply, the executive proposes that owners who sell a house be exempt from income tax on capital gains if they reinvest the gains in properties for residential rental. There is also a planned reduction in the autonomous income tax rate applied to income obtained from residential rental and subletting contracts until 2029.

Instead of the current 25% rate, the executive branch is requesting parliamentary authorization for a 10% rate, if the income falls within the limit defined as a moderate price by the executive branch (2,300 euros per month). In the case of properties owned by companies, the executive branch anticipates that only half of the rental income will be subject to income tax.

“The bias is not right; it could have a perverse effect and lead to an even greater increase in rents, at least initially,” he explained.

Considering that informality in the housing market “is high and distorts prices,” the vice-president of AIL advocates for the creation of a national rental registry to make the registration of contracts mandatory, combat tax evasion, increase transparency, and lower prices.