Portugal and Spain are struggling with some of the EU’s worst housing crises, as immigration-driven population growth, bureaucracy and high construction costs combine to create severe property shortages.
Such shortfalls are stoking public discontent and political tensions across Europe, driving up prices and rents, forcing people out of their neighbourhoods and leaving many unable to afford even a modest home.
But the strain is particularly acute in the Iberian peninsula’s biggest cities.
Portugal built 300,000 fewer properties than its population needed between 2021 and 2025, equivalent to 6.6 per cent of all the country’s households last year, according to a Bank of Spain study. Spain’s shortfall in the same period was 750,000 units — 3.7 per cent of all households.
By contrast, the Eurozone average shortfall equalled 0.5 per cent of all units, the study found. And the two Iberian countries also have some of the lowest stocks of public housing in the EU.
Bank of Portugal governor Álvaro Santos Pereira said in written answers to FT questions: “The housing affordability problem in Portugal is an ongoing concern, which is felt in several regions of the country, including in Lisbon and Porto, where affordability issues are more pronounced.”
He noted that “high migration inflows have resulted in an increase in the number of resident households” but argued that the solution lay in boosting the supply of new homes.
A surge in immigration to Portugal in recent years has included both low-income arrivals from south Asia and well-off recipients of “golden visas”, which could be obtained by buying property until the rules were tightened in 2023.
But Santos Pereira said the housing situation was improving. The Bank of Portugal said housing construction broadly kept up with the rate that new households were formed in 2025, in part due to reduced immigration. However, the cumulative housing deficit from previous years remains.
Centre-right Prime Minister Luís Montenegro, in power since 2024, has eschewed the anti-immigrant rhetoric of rightwing populists but deterred new arrivals by tightening entry rules and temporary residency requirements.
Santos Pereira, who was appointed as central bank governor last year, has sought to shift the focus away from demand. “The emphasis should be put on supply-side measures, given that the lack of supply is at the root of the accumulated shortfall,” he told the FT.
The construction sector, however, has still not recovered from the devastating consequences of the Eurozone crisis, said Manuel Maria Gonçalves, chief executive of the Portuguese Association of Property Developers and Investors. “We lost companies, we lost workers and we lost productive capacity,” he said.
Developers were ready to build today, he added, but rising construction costs and excessive bureaucracy meant it was difficult to make a profit from constructing “middle-class” homes. As a result, they were pushed “towards higher-end segments where those costs can still be absorbed”.
Still, Gonçalves applauded measures approved by the Portuguese parliament this year — including lower VAT on construction work and simpler licensing procedures — saying that they “should improve the economics of housing projects”.
The Bank of Spain measured deficits by calculating the difference between the net number of new households formed every year and the number of residential units approved for construction two years earlier, including the time lag to account for building periods.
It found Germany was the big EU economy with the strongest housing supply, with a surplus equivalent to 0.5 per cent of all households from 2021-25, counting the number of building permits approved. But it acknowledged that if the calculations used the number of new homes completed, the country had a small deficit of 0.1 per cent.
In both Spain and Portugal, the use of apartments for tourist rentals is reducing the stock of housing available for residents. Property developers and civil society groups say shortages are forcing people to sleep on friends’ sofas, rent individual rooms in units occupied by multiple families, and endure ever-longer commutes.
Lisbon residents earning the average wage would have to pay more than 110 per cent of their income to rent a typical one-bedroom apartment in the city centre — the highest level in Europe, according to Numbeo, a data provider, as well as Deutsche Bank and FT calculations. In Madrid and Barcelona, the figure is 75 per cent.
In Spain, housing is voters’ top concern, according to public pollster CIS. Prime Minister Pedro Sánchez, who leads a leftwing minority government, maintains an open-door immigration policy that has driven up demand for property, with the country’s foreign-born population surging by an annual average of 665,000 since 2022.
But Sánchez has been largely stymied on housing policy since his re-election in 2023 because he cannot get major legislation through parliament and because regional governments have more powers in the area.
In April, his government approved a €7bn housing plan for 2026-30 that includes financing for more public housing and the rehabilitation of empty buildings. But private developers say the root causes of shortages lie elsewhere.
Juan José Perucho, managing director of large Spanish developer Ibosa, said significant obstacles included bureaucracy and legal challenges that mean it takes years to obtain permission to develop on new plots.
But a bigger factor, he said, was the rapid growth in the number of working immigrants who are seeking affordable housing in the same segment of the market. “For both sales and rentals, we’re reaching a point where prices have hit levels that are no longer compatible with people’s wages,” he said.
Additional reporting by Carmen Muela in Madrid
