Anxiety and frustration: how housing can affect mental health

Index

• What are, nowadays, and very briefly, the main difficulties for those who want to buy or rent a house?
• What is the root of the problem in Portugal?
• For a young person who wants to buy their first home, what barriers are there?
• Are there any incentives missing? Which? And what future challenges does the new generation face?
• Those who bought a house are now struggling with rising interest rates and difficulty managing the effort rate. How does the market “feel” in this matter?
• Are/were you aware of any cases of families that are on the “limit” and for whom selling the house is an option?
• The Government approved aid for home loans and rental support. How do you look at these measurements?
• At the same time, there is a shortage of houses to rent and prices have skyrocketed. And there are more climbs in sight. What diagnosis do you make of this market?
• There are those who look for a solution to rent a house in the outskirts , but even there the prices are already a challenge. And yet?
• Is advancing the deposit another extra difficulty, for example?

Given the topicality and relevance of this topic, whether in social, political and economic terms,At a time when a significant part of the Portuguese population is struggling with access to housing, here are the answers based on my experience:

(Top▲) What are, nowadays, and very briefly, the main difficulties for those who want to buy or rent a house?

When it comes to buying a house, high prices, especially in the main urban areas or in places where tourist demand is greater, are the main problem. This is worsened by the difficulties in taking out a bank loan. Euribor interest rates have reached values that have not been recorded since 2008. Furthermore, banks have been tightening the conditions for approving mortgage loans, analyzing the effort rate of applicants, which, according to the recommendations of the Bank of Portugal, should not exceed 35%.

When it comes to renting houses, the difficulties are similar: the high monthly rent is the biggest obstacle. The rental market in large cities is so small and prices are so high that the majority of new contracts are signed with foreign clients, who have greater purchasing power.

(Top▲) What is the root of the problem in Portugal?

There is no single reason. But, if I had to choose the 'Top 4' of the main reasons behind the current crisis in access to housing, they would be these:

1. Shortage of new construction properties: This is a problem that worsened after the 2008 crisis, with the bankruptcy of many construction companies, the emigration of professionals in this sector to other countries and the strategic change of many large construction companies, who moved from the residential segment to public works or businesses outside Portugal.
2. Rising construction costs: This is partly due to the fact that, for a few years after the 2008 crisis, prices for services and materials were compressed, and, on the other hand, to successive global crises: the pandemic 2019, the increase in fuel costs, the shortage of labor that made it more expensive and the increase in inflation in general.
3. Scarcity of urbanized or developable land in the main metropolitan areas of Lisbon and Porto: Due to the imbalance between demand and supply for this type of property, many owners took advantage of the opportunity to increase prices.
4. Loss of competitiveness in the real estate sector, which makes it difficult to reduce prices, even with the dissipation of the effects of inflation:

1. Fiscal pressure has increased significantly in the last two decades, directly and indirectly, penalizing all stages of building a house, from the development of a plot of land, through construction to mediation of the final sale. According to some studies, the tax impact on the formation of the sale price of a home can represent almost a third.
2. Increased delays in various licensing processes by municipal councils, partly due to the pandemic and associated labor restrictions, and partly due to a lack of investment in human resources, to respond to the resumption of construction after almost six years of paralysis.
3. Regulation in the construction sector has become more demanding and complex in the last decade, due to requirements from the European Community. This led to an increase in labor costs and other administrative processes, which are reflected in the final price of the houses.

(Top▲) For a young person who wants to buy their first home, what barriers are there?

Firstly, the ECB has been increasing pressure on the banking system, via Banco de Portugal, to reduce the effort rate of those who use credit to buy a house. If 2 decades ago a young person could obtain a loan, added to a personal credit and thus take out a mortgage to finance up to 100% of the purchase of a house, today this is impossible.

The low wages in Portugal, especially for younger people, increase the Effort Rate and prevent them from being able to take out a loan, if they do not have a reasonable nest egg, between 20% and 30% of the value of a loan. House. Everything points to this value rising to 40% or even 50% in the future, as happened in the 80s and 90s. On the other hand, many young people have a short-term contractual relationship, which makes the task of approving credit difficult.

(Top▲) Are there any incentives missing? Which? And what future challenges does the new generation face?

In Portugal and other European countries, private developers are and will always be the main drivers of the residential construction sector. Currently, many developers are more focused on construction for the high-end segment, as demand remains high, margins are more attractive and risks are lower. Even with support from the PRR or other European funds, the construction capacity of municipal councils is limited and completion times tend to be longer, which is usual in public works.

Therefore, it would be essential that, instead of the State focusing on building its own housing, for sale or rent (taking on the role of landlord for which it is not designed), it established a facilitating regime to:

• Developers who want to invest in accessible construction for young people, in order to:
  • Reduce the tax impact on land acquisition and the various phases of housing construction.
  • Facilitate the conversion of rural land into urban land, many held by municipal councils, against the condition of a maximum sales price per m², indexed by region, thus reducing the cost of land acquisition.
  • Create a priority route in the urban planning departments of the Municipal Councils, for licensing from the consultation phase, through construction licensing to the issuance of the End Use License.
• Facilitate access to housing credit, improving credit subsidy conditions, with state support, for younger buyers (up to 40 years old), overcoming the limitations imposed by the ECB rules for the Effort Rate.

As for the challenges faced by the younger generation, they are more than predictable: without the means to purchase or rent housing, many young people will consider emigration, an unfortunately common option for those who complete their university education.

(Top▲) Those who bought a house are now struggling with rising interest rates and difficulty managing the effort rate. How does the market “feel” in this matter?

For now, despite the gloomy predictions of many, these young owners have not yet given up on their dream. As long as they can, either by renegotiating with the banks in order to reduce the rise in installments, or by resorting to the support of family members, they try to maintain their banking commitments and keep their homes.

For many, it is a "tick-and-click" that drains their savings while they wait for the ECB to reduce interest rates. If the ECB extends this period of rising interest rates for too long, many will consider selling their home.

(Top▲) Are/were you aware of any cases of families that are on the “limit” and for whom selling their house is an option?

Yes. As I work primarily with the upper-middle class segment, I have come across similar cases, especially from families with children and, consequently, with a more complex cost structure. These families, even though they had already started the sales mediation process, managed to reverse the decision thanks to the support of their parents, or thanks to bank renegotiation.

(Top▲) The Government approved aid for home loans and rental support. How do you look at these measures?

These measures are clearly insufficient and are outside the scope of the main real estate agents: landlords and developers.As long as the measures focus only on the buyer's side, they will always be insufficient and will mostly serve to feed false expectations and increase distrust of the real estate sector.

(Top▲) At the same time, there is a lack of houses to rent and prices have skyrocketed. And there are more climbs in sight. What diagnosis do you make of this market?

It was not necessary to wait a year, after the publication of the first draft of the More Housing Package, to realize that the measures announced at the time and recently approved would be counterproductive and would generate distrust in real estate agents, especially in the rental market.

This package has some positive measures, but it fails, once again, to look at the housing problem from a biased perspective: that of thinking that the problem of access to housing can only be resolved by rigidly conditioning and regulating the market. The past has shown that the immediate and temporary advantages of this type of approach always end up having a negative impact on the future of the sector, because they undermine the confidence of landlords and other investors.

Since January, I have seen many cases of owners who, being comfortable with the long-term rental situation, after the announcement of several measures aimed at increasing coercion and rigidity in this market, decided to end rental contracts and sell their properties.

As long as measures with real impact are not implemented, which address the housing problem from an integrated perspective of encouraging the construction of houses, without neglecting the remaining problems of territorial management (improvement of the transport network and State proximity services), these and other measures will only be palliatives for a problem that is not exclusive to Portugal, but which has a greater impact on our young people.

(Top▲) There are those who look for a solution to rent a house in the outskirts, but even there the prices are already a challenge. And yet?

Yes, in the municipalities of the Metropolitan Areas of Lisbon and Porto, which include 45% of the Portuguese population, this trend is common to almost all of them.The housing problem cannot be viewed from a purely municipal perspective; It is necessary to understand that the Metropolitan Areas of Lisbon and Porto have, on their own, the capacity to contribute to the solution of this problem. However, if nothing is done, they will also be affected by the same issue of imbalance between demand and supply. Metropolitan Areas have the potential to encourage the construction of more housing at more affordable prices. As?
By placing cheaper land for collective construction on the market, by facilitating licensing projects and above all by creating a more efficient integrated transport network.

It would be extremely relevant if the solutions that are implemented to address these housing and mobility issues include the financial potential and management capacity of private investors. Without your collaboration, everything will tend to be marked by slowness and insufficiency, as previously noted. The State has already demonstrated that, despite good intentions, electoral promises and European funds, the problem not only persists but has worsened. The time has come for the State to recognize that the solution for housing involves establishing partnerships and a regime of mutual trust between 'the strength of the public and the energy of the private'.

(Top▲) Is advancing the deposit another extra difficulty, for example?

At the current moment in the market, in which the majority of available rentals are promoted at very high prices, especially in large urban or tourist areas, it cannot be said that specific issues such as the deposit are an obstacle. As long as supply remains much lower than demand, all properties that hit the market immediately attract a line of interested parties, especially foreigners, who pay all the conditions required by landlords, or almost all of them :)