Spain and Portugal have Europe’s worst housing shortfalls. Brussels is assembling a response — but it may arrive too late for millions.
Lisbon residents earning an average wage must spend more than 110 per cent of their income to rent a typical one-bedroom apartment in the city centre. That is the highest figure in Europe, according to data provider Numbeo, as well as Deutsche Bank and Financial Times calculations. In Madrid and Barcelona, the figure is 75 per cent. These are not outliers. They are symptoms of a structural failure years in the making.
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, or 3.7 per cent of all households. The eurozone average shortfall equalled 0.5 per cent. Both Iberian countries also have some of the lowest stocks of public housing in the EU.
Workers, tourists, and missing homes
The causes are multiple and mutually reinforcing. Immigration has driven sharp growth in demand. Spain’s foreign-born population has surged by an annual average of 665,000 since 2022. Portugal has seen an influx of both low-income arrivals from south Asia and wealthier recipients of “golden visas”, which could be obtained by buying property until the rules were tightened in 2023.
At the same time, the construction sector never fully recovered from the eurozone crisis. “We lost companies, we lost workers and we lost productive capacity,” said Manuel Maria Gonçalves, chief executive of the Portuguese Association of Property Developers and Investors.
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Developers are willing to build, he added, but rising construction costs and excessive bureaucracy make it difficult to profit from constructing homes for middle-income buyers. Instead, they are pushed “towards higher-end segments where those costs can still be absorbed”.
Tourism is making things worse. In both Spain and Portugal, the use of apartments for short-term rentals is shrinking the stock available to residents. Property developers and civil society groups say shortages are forcing people to sleep on friends’ sofas, rent individual rooms in units shared by multiple families, and endure ever-longer commutes.
Governments caught short
Juan José Perucho, managing director of large Spanish developer Ibosa, was blunt. “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 told FT.
The political consequences are mounting. In Spain, housing is voters’ top concern, according to public pollster CIS. Spanish Prime Minister Pedro Sánchez has been largely stymied on housing policy since his re-election in 2023. He cannot pass major legislation through parliament, and regional governments hold most of the relevant powers.
In April, his government approved a €7bn housing plan for 2026–30, covering public housing finance and the rehabilitation of empty buildings. Private developers say it does not address the root causes.
A structural gap
In Portugal, centre-right Prime Minister Luís Montenegro has tightened entry rules and temporary residency requirements, deterring new arrivals without resorting to anti-immigrant rhetoric. Bank of Portugal governor Álvaro Santos Pereira said the housing situation was improving: construction broadly kept pace with new household formation in 2025, partly because immigration slowed.
The cumulative deficit from previous years, however, remains large. “The emphasis should be put on supply-side measures, given that the lack of supply is at the root of the accumulated shortfall,” Mr Santos Pereira told the Financial Times.
Mr Gonçalves welcomed measures approved by the Portuguese parliament this year—including lower VAT on construction work and simpler licensing procedures—saying they “should improve the economics of housing projects.” But the structural gap will not close quickly. Bureaucracy and legal challenges mean it takes years in Spain to obtain permission to develop new plots. Supply cannot respond fast enough to demand that has already arrived.
Brussels reaches for its toolbox
The European Union has begun to treat housing as a matter of common concern. It is a significant shift from its traditional deference to national competency. The Commission unveiled the European Affordable Housing Plan in December 2025, anchored by a €150bn pan-European Housing Investment Platform backed by the European Investment Bank.
For both sales and rentals, we’re reaching a point where prices have hit levels that are no longer compatible with people’s wages. — Juan José Perucho, Ibosa
The European Parliament backed the plan in a resolution on 24 March 2026, urging fast-track legislation and fresh EU budget lines. A first-ever EU Housing Summit, scheduled for the fourth quarter of 2026, will shape the binding elements of a forthcoming Affordable Housing Act.
The EU is also moving on costs and supply through the recast Energy Performance of Buildings Directive (Directive (EU) 2024/1275), which entered into force in May 2024. Member states must transpose it by 29 May 2026. The directive requires mandatory renovation passports, minimum energy performance standards for the worst-performing 15 per cent of buildings, and a zero-emission standard for all new residential buildings from 2030.
A plan, but not yet a solution
On short-term rentals (a particular scourge in Lisbon, Madrid, and Barcelona) Regulation (EU) 2024/1028 entered into force in May 2026. It requires an EU-wide registration number for every short-term rental property and monthly data reporting from platforms such as Airbnb to local authorities. A Commission evaluation in late 2027 may propose caps on rental nights if data show persistent housing pressure.
The EU’s response is real, but it is also slow and fragmented. There is no single housing directive. Instead, Brussels is assembling a toolbox (a soft-law plan, a hard-law renovation mandate, and market-management rules for short-term rentals) while the Affordable Housing Act remains unfinished. The Commission roadmap is expected only by December 2026. Success will depend on member-state implementation and on how quickly supply can actually respond.
For the young worker in Lisbon spending more than her entire wage on rent, or the family in Madrid sharing a flat with strangers, the timeline feels abstract. Europe’s housing crisis did not arrive overnight, and neither will the answer.
