Housing: Average rent for old contracts is 166.54 euros

The average value of old rents, prior to 1990, is 166.54 euros and more than 80% of tenants are over 70 years old. This is one of the conclusions of the first “Report on Housing Rental in Portugal”, prepared by the Housing, Leasing and Urban Rehabilitation Observatory (OHARU) released this Monday.

The study, based on the 2021 Census, also reveals that of the 124,083 rental contracts prior to 1990 – before the entry into force of the Urban Lease Regime (RAU) – 21,084 tenants asked the tax authority for proof of economic deprivation. The report foreseen by the Government in OE 2022, intends to “radiography” the old contracts whose rents will now be frozen forever as they will not be transferred to the New Urban Lease Regime (NRAU).

A study requested by the Government would also serve as a basis for establishing the amounts and limits of compensation to be granted to landlords under the terms of Law 56/2023, which regulates the Mais housing program. For now, it is known that landlords in these contracts will benefit from IRS and IMI exemption in 2024, and it is still unknown what the rent update will actually be from next year for contracts prior to 1990.

71% of tenants with less than 15,992 euros per year

The Lisbon Metropolitan Area concentrates the majority of old contracts (66%), followed by Porto (17%). Most of the elderly tenants live in accommodation that, for the most part (89.5%), is not wheelchair accessible. The study reveals that undercrowding is also the most common (69%). In terms of income, 71% of households fall into the first three income tax brackets, that is, they earn up to 15,992 euros.

The report estimates two scenarios for the allocation of rent subsidies provided for either in Mais Habitação or in previous legislation if the rents were carried forward and updated in light of the NRAU.

In this way, the authors note that, “in a theoretical exercise of estimating the rent subsidy” provided for in Decree-Law No. 156/2015, in which it is assumed that the new rent per m2 corresponds to the median value (which is not the incentive given by that diploma), a monthly expenditure of around 11.5 million euros is calculated, that is, 138 million euros per year, for 21,084 tenants. In practice, the equivalent of an average support of 545.4 euros per month for these tenants.

As for the aid provided for in Law 56/2023, Mais Habitação, the report points out two scenarios. In the first, the authors assume compensation that corresponds to the difference between the average value of current rents (obtained from 2021 Census data) and a rent defined based on the median value of m2 of new lease contracts, published by INE . Considering the universe of 124,083 accommodations and applying this methodology, the compensation could amount to a monthly expense of 54.4 million this year, that is, 653 million euros per year, the report reads. In practice, the average support for contracts would be 438.4 euros per month. If a ceiling of 80% on the median value per m2 is considered in new lease contracts, the value would be approximately 39.8 million euros per month (477.8 million euros per year). In practice, the average monthly support would drop to 320.7 euros.

The second scenario retained by the authors of the report and for the same universe of 124,083 accommodations, it is assumed that the tenant will pay a rent in accordance with the effort rates established in article 35 of the NRAU – maximum of 25% of the Annual Income Adjusted Gross of the tenant’s household – with the landlord being compensated by the State for the remainder to 1/15 of the taxable asset value, when this value is higher than the tenant’s income. Applying this methodology results in an estimated monthly cost of around 2.2 million euros, which corresponds to an annual cost of approximately 26.6 million euros. In practice, an average monthly support would be around 17 euros.

Overcrowding in areas with an influx of migrant labor

As for the most recent contracts, the “Report on Housing Rental in Portugal” highlights, among other aspects, the growth of overcrowding situations has a visible geographical mark, sometimes associated with economic activities benefiting from migrant labor, “at least that in this area too the solution will not be monolithic, as it must involve a mix of policies beyond housing”. Another line of conclusion points to the inadequacy of the existing offer to the new existing family reality. “In line with the increase in the number of households with 1 and 2 elements, the types of accommodation available in the housing stock present differences in terms of suitability, given the evident needs for more T1 and T2 typologies”, conclude the authors. On the other hand, they point out that “theAlthough the number of classic family accommodation available is no longer a problem, their asymmetrical location alongside unequal population attraction poles, highlight the need for policies more focused on low-density territories, that is, the solution to the problem of Access to housing is not limited exclusively to affordable and decent housing.”