Portugal's Homes Are Harder to Afford Than Usual by the EU's Widest Margin

A measure with a moving benchmark

Most housing comparisons ask whether prices are high. This one asks a harder question: whether prices are high relative to what that country's own residents have historically paid.

The ratio divides house prices by income, then indexes each country against its own long-term average. A value of 100 means housing takes the same share of income as it typically has there. A value of 120 means it takes a fifth more.

Two details of that construction decide how it should be read, and both come from the source's own definition. The long-term average runs from 2000 to the latest year a country's own series reaches, so the benchmark is up to a quarter-century of that country's own history rather than its recent past — shorter where the series starts later, as it does for the EU aggregate itself. And income here is not wages: it is adjusted gross disposable income per head of population — income after tax and cash benefits, with services the state provides in kind counted in as well.

That construction removes the problem that makes raw price comparisons useless. Housing in Luxembourg costs many times what it costs in Bulgaria, and saying so tells you nothing about whether either market is stretched.

The EU figure is 98.9, essentially at its own norm.

The stretched markets

Portugal records 122.9, the highest in the Union. Luxembourg records 118.6, Austria 115.2 and Czechia 112.1.

Portugal's position is the one with the clearest external cause. Portuguese house prices have risen sharply over the past decade, driven substantially by foreign purchasers and short-term letting in Lisbon and Porto, while Portuguese incomes have grown far more slowly. The ratio measures exactly that divergence.

Portugal also records among the lowest wages in western Europe and an in-work poverty rate above the EU figure, which is the combination that makes the housing figure politically volatile: prices set partly by external demand, incomes set domestically.

Below the norm

Romania records 48.2 — housing costs less than half the share of income it has historically. Bulgaria records 67.8.

This is not a sign of cheap housing in absolute terms so much as of incomes that have risen faster than house prices. Romanian wages have grown very rapidly, which is visible in the unit labour cost study in this category where Romania records 145.0 against a 2020 base.

When incomes rise faster than prices, affordability improves even if prices are also rising, and Romania is the clearest case of it in the Union.

Italy and Finland

Italy at 85.8 and Finland at 79.7 are the western Member States furthest below their long-run norms.

Both have had weak house price growth over an extended period. Finland recorded outright falls in the most recent year, which the companion study on house price changes reports.

For a homeowner these are losses. For a first-time buyer they are the opposite, and a single indicator cannot represent both. The ratio describes the position of someone entering the market rather than someone already in it.

What a national average hides

Every figure here is a national aggregate, and housing markets are the least national of markets. A country can be below its long-term norm overall while its capital is far above it.

That limitation is severe enough to state plainly: this indicator identifies which countries have a housing affordability problem at national scale, and it will systematically understate problems concentrated in one city.