The new Soil Law: what changes?

But what changes with this new Decree-Law No. 117/2024, of December 30, and what will be the actual impact on the real estate market and housing access? Let us explore the specifics of this reform and its main anticipated effects.

The context: a response to the housing crisis

In recent years, the housing crisis in Portugal has become a priority issue, aligning with what is happening in other European countries. The continuous rise in prices, the shortage of supply, immigration pressures, and difficulties in accessing housing credit have placed many families in extremely vulnerable situations. Facing this scenario, the Portuguese Government introduced the new Land Law, an integral part of the “Building Portugal” plan, aiming to increase housing supply, particularly for low- and middle-income groups.

The measure also aims to modernize the land-use planning model, allowing for more efficient land use without compromising sustainability or quality of life in urban and rural areas. Furthermore, it seeks to expedite the effectiveness of this emergency intervention without depending on changes to the 308 Municipal Master Plans (PDMs) across the country.

What specifically changes?

The main innovation brought by the new Land Law is the possibility of building housing on rustic land, which was previously not allowed. This change promises to significantly alter the real estate landscape but not without some rules and conditions to follow. Here are the main specifics of the law:

• Public and Affordable Housing: The primary focus of the new legislation is on building public and affordable housing. This means that new constructions must primarily meet the needs of families with low or middle incomes. This implies greater municipal intervention in public construction, raising some questions as its real effectiveness may vary depending on budgetary availability and the dynamism of policies in each municipality.
• Moderated Prices: To ensure prices remain within a reasonable limit, the law sets a maximum price cap per square meter of gross private area. This value cannot exceed 125% of the median price per square meter in the municipality where the property is located or 225% of the national median. This measure aims to prevent real estate speculation and ensure that new house construction does not contribute to an excessive price increase. These median values are determined according to the latest statistics from the National Statistics Institute at the date of the purchase agreement, considering all transactions for sale prices.
• Typology Distribution and Deadlines: Most housing (70%) must be allocated to moderate prices or affordable rental. Additionally, construction must be completed within a maximum of 5 years, with the possibility of extension for exceptional reasons. If the established deadlines are not met, the reclassification of the land can be reversed.
• Clear Criteria for Land Conversion: The new law specifies the criteria and procedures required for converting rustic land into land suitable for construction. These criteria aim to ensure transparency in the process, avoiding arbitrary decisions that could harm land-use planning and addressing many situations of corruption involving municipal agents related to changes in the PDM.

Impact on the real estate market

The impact on the real estate market will be substantial, primarily due to the increase in available land for construction and the greater supply of housing. The following are the main anticipated effects:

• Increased Housing Supply: With the possibility of building on rustic land, an increase in property supply is expected, particularly in peripheral and rural regions. This increase could help stabilize the market, addressing growing demand and helping to control prices.
• Focus on Affordable Housing: The goal of ensuring affordable housing construction could make homeownership or renting easier for many families. With a clear focus on moderately priced housing, the market is expected to become more inclusive, especially for the middle class in less centralized or suburban areas.
• Dynamic Land Market: The rustic land market is likely to heat up in the coming times, with many owners seeking to reclassify their lands for construction. This could make the land supply more dynamic but also put upward pressure on their prices.

Impact on Housing Access

The main objective of the new Land Law is to increase housing access for all citizens. According to the legislation, the main benefits for housing access are as follows:

• Greater Housing Availability: The increase in supply, especially in places where construction was previously prohibited, should help alleviate market pressure, making it easier to meet housing demand. This effect will be more noticeable in the outskirts of major cities, such as Lisbon and Porto, where many lands are still classified as rustic. Excluded from this intervention are lands within the National Agricultural Reserve or the National Ecological Reserve.
• More Affordable Prices: With the introduction of price controls, the new law could help make homeownership or renting more viable for low- or middle-income families. The creation of a public housing supply will also be crucial in reducing pressure on the private market.

Controversies and Warnings

Although the new Land Law introduces positive measures, there are also several criticisms and concerns that cannot be ignored:

• Real Estate Speculation: The possibility of reclassifying rustic land into urban may encourage some investors to purchase land with the expectation of selling it later, already urbanized, at higher prices. This could counteract the goal of price control and ensuring affordable housing.
• Pressure on Infrastructure: Construction on rustic land could result in significant pressure on existing infrastructure, such as transportation networks, water supply, and public services. Urban management must be careful to avoid overloading existing communities.
• Legislative Gaps: Some mayors and experts point out potential gaps in the law, particularly regarding its practical application. The lack of clear regulations on specific issues could hinder the implementation of the proposed measures.
• Corruption Risk: Experts and political parties warn that greater flexibility in reclassifying rustic land into urban may open the door to corrupt practices, such as favoring private interests over public interest.

Summary

The new Land Law emerges as an attempt to address Portugal's housing crisis, aiming to increase the supply of affordable properties and provide solutions for families struggling to find reasonably priced homes. With the possibility of building on rustic land and imposing controlled prices, the reform has the potential to positively impact the real estate market and facilitate housing access.

However, it is important to keep in mind that implementing this new legislation requires close monitoring to ensure that the benefits are truly achieved without harming environmental sustainability or the quality of life of populations.

Important Note: This article is for informational purposes and does not replace consulting the official legislation.