Will Ending NHR Stop Madeira's Housing Crisis?

Lisbon's Housing Market Hits Historic Highs

According to a recent Bloomberg report, housing market prices in Lisbon have surged by over 5% to a new record high—reaching an astonishing 5,426 Euros per square meter.

Following substantial increases over the past few years, Lisbon now surpasses Milan or Berlin, the German capital city, which in contrast has experienced consistently high-paced price growth and standing at around 5,000 Euros per square meter.

For the vast majority of the Portuguese population, these price levels make it impossible to afford their own homes. The Portuguese government is now trying to get the situation under control.

Is a Full-Stop on Incentives the Solution?

The Portuguese government has long encouraged people to move to the country, but it recently halted incentives like NHR and will apply changes to the Golden Visa regulation. Will this move effectively address or even reverse the housing crisis? Unlikely!

“Despite these changes, we’ve seen an increase in the number of inquiries from our foreign clients”

Paulo Silva, Real Estate Consultant

Lisbon, like the rest of Portugal, remains more affordable than many other major European cities, offering comparably reasonable prices for groceries, services, and a host of attractions, including nature, culture, infrastructure, and most importantly, a great climate throughout most of the year.

As European society becomes increasingly mobile, the dilemma is set to intensify. People are more inclined to move and are no longer confined to their home countries. Unfortunately, a viable solution remains elusive, and there's a possibility that the situation may worsen.

Social Housing Represents Only 2% in Lisbon

Unfortunately, one of Portugal’s weak spots is the lack of social housing. Lisbon’s social housing accounts for only 2%. This is much lower than the European average, which is 5% in Germany, or 17% in France.

The high prices in central Lisbon and the limited availability of social housing put immense strain on the suburbs. People are thus forced to leave Lisbon in search of housing in remote areas, facing more precarious conditions.

How This Compares with Madeira and Funchal

Madeira and most notably Funchal are experiencing a very similar situation. Just like Lisbon, Funchal has experienced a substantial surge in housing prices within a very short time. Also, same as with Lisbon, the NHR regime is running out and the Golden Visa is likely to undergo changes.

However, there is one important difference: Madeira is densely populated and there are no suburbs to escape to. There is only the sea and the mountains, both not a viable and at best an expensive solution for creating new housing. It’s a simple fact: Funchal nor any other Madeiran town can extend its borders and grow suburbs.

While people in Lisbon are not being asked, nor do they have a choice, they are effectively able to remain in the vicinity of their home region. For Madeirans, this becomes ultimately more difficult.

What Will be the Outcome

Even with the halt on the NHR program, if Madeira continues to attract global residents, the future appears bleak. Despite a thriving tourism sector, it seems the system may not prioritize those contributing to the island's prosperity.

Indications point to a continued struggle in Madeira to offer everyone a viable housing opportunity. As the global economy struggles and with an uncertain but high level of interest rates, a growing number of young individuals will continue to find themselves excluded from the housing market.