There is no Bubble in Real Estate

You don't have time to read? Now you can listen.

One of the most talked about topics these days is house prices. This is because the last few years were marked by the most expressive appreciation of housing in Portugal. Although this phenomenon is felt greater in big cities, as would be expected, no one could predict that it would be as present and quick in the outskirts of big cities. As a consequence, in the case of Lisbon for example, there was an exponential increase in all its surrounding areas, with special emphasis on the south bank of the Tagus River. The result? Many of Lisbon's residents moved to places such as Almada, Charneca da Caparica, Aroeira, Setúbal and Palmela.

Millenials meeting on an esplanade

Photo by Helena Lopes in Unsplash

However, the ones that are most impacted by this socioeconomic situation are the Generation Z and the Millennials. The current feelings nourished by the individuals in these age groups are, among many, one of discontent and revolt. It's very common for these generations to fall into the conception, or desire, of wanting to equalize (at least) what their parents provided them. However, it is important to not forget that 20/25 years ago the entire socioeconomic situation was extremely different: most professions did not require high academic qualifications, there was a huge supply for equal demand in the housing market and, most importantly, the vertical progression in the labor market was simply staggering. Whereas nowadays, although today there are also more job opportunities from a global market perspective, nothing is forever. What we do know is that, given this situation, the market has more opportunities but it is also more challenging for these age groups to achieve the kind of life they aspire to have. But through the previous generation's Modus Operandi, salaries remain traditionally low and the cost of living won't stop rising.

As an article in Eco advances, «Portuguese young adults leave their parents' home, on average, at 29 years old, which places Portugal above the average among EU Member States, of 26.2 years in 2019 , point out Eurostat's data (...). In Portugal, more than 40% of young Portuguese adults, aged between 25 and 34, still live with their parents. Real estate market prices, employment possibilities, financial incapacity, studying or having (or not) a partner, and also cultural reasons, are among the various reasons that justify this reality.»

Leonel Reis

Leonel Reis (economist)

And hand in hand with this situation is the idea that there is a real estate bubble that will "eventually" burst. Supported by the mere hope that this reality will change in the near future, young adults believe that at some point the prices currently practiced will have to, necessarily, come down. But is there really a bubble in the housing market? And if so, will its days be numbered? Leonel Reis, specialist in real estate, expresses his opinion on the subject: «The reality is that there is no real estate bubble. This false concept is merely a hope that at some point the price of housing will come down, making it possible for a larger slice of the population to purchase a home. In fact, everything is as simple and basic as the law of demand and supply, as long as there is demand and there is supply to satisfy the needs of that demand, the market will prosper - and consequently we will see a natural appreciation of the real estate market. We often discuss the possibility of there being a "gap" between this demand, which in the center of Lisbon is dominated by international clients with tendency to occur also outside the big cities, and the offer of properties that are accessible to the locals. Will there be a situation in which demand at the international level ends up stagnating, or even falling, and there are no affordable properties for locals - forcing prices to fall? I honestly don't believe there will, for the simple fact that the demand for our country does not stop growing worldwide due to its immense and unique qualities and characteristics that it can provide to its inhabitants. The rental and acquisition of housing by these international customers is growing daily, also due to the new professional reality that the pandemic situation has accelerated, in relation to working from a distance. Ordinary national citizens have no idea of the value given to our country, having intensified itself after the pandemic. A country that provides safety, quality, a coastal lifestyle with enviable weather throughout the year and, above all, people whose nature is kind and incomparable compared to other European countries, is the perfect recipe for anyone who wants live here. This growth has been so fast that it is now necessary to adjust some infrastructures to the new reality. We are just at the beginning of a cycle, in this demand, and it will continue to grow. Given this new reality, the need for the state to create conditions so that nationals continue to have the right to decent housing becomes clear, but of course, not in the case of the private investor replacing the social state and its obligations.»