Government wants make housing rental law more flexible

The Government intends to relax rental laws to boost the market, as well as to combat the shortage of housing supply and limit price increases. The plan is expected to be approved this Thursday by the Council of Ministers and will be comprehensive, with tax measures and financing lines for construction and other financial solutions, but the Executive knows that the effects of these changes will take time and, therefore, changes to the rental law are the option to promote landlords’ confidence and the availability of properties on the market in the short term.

For weeks, the Minister of Infrastructure, Miguel Pinto Luz, has been working on this cross-cutting plan, knowing that it is the most difficult dossier he has on his hands. The Government had already put forward ‘Construir Portugal’ (Building Portugal) in the previous legislature, but without any profound changes to the rental market. Now, among the measures being studied is the end of the 2% limit on rent increases in new rental contracts for properties that were on the market in the previous five years, as well as the simplification and facilitation of evictions in the event of non-payment of rent.

Although fiscal measures and even construction financing are also planned, such as the programmes already announced with the European Investment Bank (EIB) for affordable rents, the plan, which is expected to be approved on Thursday, clearly focuses on changes to the rental law, with the reversal of measures included in the ‘Mais Habitação’ (More Housing) package of the Government led by António Costa, presented in 2023.

In May 2024, less than a year later, Luís Montenegro’s Executive approved the ‘Construir Portugal’ programme and revoked some of the rules in force, namely compulsory leasing. This was to be expected, as the programme caused several controversies and was vetoed by the President of the Republic, Marcelo Rebelo de Sousa.

When ‘Construir Portugal’ was approved, the then Minister of the Presidency of the Council of Ministers, António Leitão Amaro, described compulsory leasing as a “highly punitive” measure that “punished private property” by causing “an imbalance that discouraged the placement of and investment in residential property”. However, even with the various changes, the aforementioned 2% cap on new contracts remained unchanged. Something that is now about to change.

Currently, the rent charged in a new lease agreement (not including contract renewals) can only be increased by 2% compared to the previous amount, based on the last rent charged in a previous agreement, regardless of the tenant.

Essentially, there are three exceptions to this cap. First, when the automatic adjustment coefficients (increases in line with inflation) for the previous three years have not been applied in the previous contract. Second, to those who had rented their home at a value below the affordable rent benchmarks, given that the 2% only applies when the rent is higher than the general limits applicable to the Rent Support Programme. Thirdly, if you have carried out renovation work in order to be able to rent the property at a higher price — that is, if there have been renovations (duly proven by the local council), the landlord can increase the rent in the new contract by up to 15% in order to offset the expenses.

Rents may rise by 2.24% next year

From 1 January 2026, rents may rise by up to 2.24% if landlords so wish. The inflation rate used to calculate the annual rent adjustment coefficient stood at 2.24% in August, slightly below the initial estimate of 2.25%, according to data released by the National Statistics Institute (INE).

The annual average CPI excluding housing is used to calculate the annual update coefficient for the various types of rent. For next year, landlords can make slightly more significant increases compared to the current year, when the increase was up to 2.16%.

Despite the new increase, the value of the rent update coefficient maintains the slowdown recorded in 2024, after years of significant increases that forced even the Government to impose a brake. In 2023, the value of the coefficient was almost 7%.

Last year, rental prices in Portugal rose by 10% and the median rent rose more than wages in Portugal, as shown by the median of new contracts signed in the first quarter of 2025 compared to the same three months last year. In a five-year comparison, the increase in rents was over 70%.