Portugal has emerged as the European Union country with the most overvalued housing market, according to new estimates from the European Commission, adding to growing concerns about affordability across the bloc. The Commission says average home prices in Portugal are overvalued around 25 percent, placing the country ahead of other overheated markets such as Sweden, Austria and Latvia.
The findings were included in a report released alongside the European Commission’s broader push to address housing affordability, an issue that has become increasingly urgent in many European cities. While rising property prices have been a common trend across Europe, Portugal now stands out for the scale of the imbalance between housing costs and underlying economic fundamentals.
According to the Commission, the overvaluation reflects a combination of strong demand, limited housing supply and price growth that has outpaced income levels. In recent years, Portugal has attracted significant interest from foreign buyers, digital nomads and investors, drawn relatively mild climate, lifestyle appeal and favourable residency programmes. This influx has helped push prices higher, particularly in Lisbon, Porto and popular coastal areas.
At the same time, housing construction has struggled to keep pace with demand. Planning delays, rising construction costs and labour shortages have constrained new supply, adding pressure to an already tight market. For many local residents, wages have not kept up with soaring home prices, making home ownership increasingly out of reach.
The Commission’s analysis places Portugal ahead of other countries facing similar challenges. Sweden, Austria and Latvia were also identified as having overheated property markets, but none matched Portugal’s estimated level of overvaluation. Economists say such imbalances increase the risk of market corrections if economic conditions weaken or borrowing costs remain elevated.
Higher interest rates across the eurozone have already cooled housing markets in some countries, but in Portugal prices have remained relatively resilient. Analysts attribute this partly to continued foreign demand and a shortage of available homes, which have cushioned the impact of tighter monetary policy.
Housing affordability has become a politically sensitive issue in Portugal, where rising rents and home prices have sparked public protests and debate. The government has introduced measures aimed at easing pressure, including incentives for long term rentals and limits on certain short term rental licences. However, critics argue that these steps have so far failed to deliver meaningful relief.
The European Commission has urged member states to address housing challenges through a mix of supply side reforms, investment in social housing and policies that support sustainable urban development. In Portugal’s case, the Commission’s assessment adds weight to calls for deeper structural changes rather than short term fixes.
Experts warn that persistent overvaluation can have broader economic consequences. If housing costs continue to rise faster than incomes, consumer spending may be squeezed and inequality could worsen. There are also concerns about financial stability if households take on excessive debt to enter the market.
For now, Portugal’s position at the top of the EU’s overvaluation list underscores the scale of its housing challenge. As affordability pressures mount, policymakers face growing pressure to balance market attractiveness with the need to ensure that housing remains accessible for the people who live and work in the country.
