Marques Mendes: House prices in Lisbon and Porto kill the social elevator

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In his usual opinion slot on SIC, commentator Luís Marques Mendes discusses the escalation of housing prices in Lisbon and Porto, the latest economic data, the parallel economy and the political “rentrées” of the PSD and Liberal Initiative, among other topics.

ALGARVE TOURISM

  1. Much has been said about tourism in the Algarve. Is it better or worse? Are there more or fewer tourists this year? Are restaurants more or less empty? Regardless of one’s feelings, there is objective data that AHETA, an important association in the sector, has made public in recent days:
  • Tourism by foreigners has not decreased. Foreigners continue to bet on the Algarve. But national tourism is registering a drop of around 7% compared to the previous year. AHETA says so.
  1. None of this is surprising. There are two main reasons for this drop.
  • One reason seems obvious: the social crisis in Portugal. Because of inflation and rising interest rates on housing loans. With all this, people have less income and less purchasing power. So they are “forced” to cut back on vacations. Either they don’t take vacations away from home, or they take shorter vacations, or they take vacations in cheaper places.
  • The other reason already requires more attention: the Algarve is very expensive. Prices have gone up a lot. They have gone up in hotels, apartments and restaurants. These high prices are not usually a problem for foreigners. But they are a problem for the Portuguese. The difference in purchasing power is significant. What’s more, there are cheaper alternatives. For example, in the south of Spain. This is a serious problem. A problem that should be addressed by tour operators and hoteliers in the Algarve.


LISBON WITH THE MOST EXPENSIVE HOUSES IN EUROPE

  1. In a few days the President of the Republic will decide what to do with the housing package. No one knows whether Marcelo will enact or veto it. But there is one thing that is known: after the government presented the “Mais Habitação” program at the beginning of the year, house prices in Lisbon have risen even more. Lisbon has even become, in the last two quarters, the city in Europe with the most expensive rents. This means that the government’s housing package has had a negative effect from the start. And it continues to be contested, from right to left, from the CDS to the PCP.
  2. According to an international website, Lisbon has overtaken Amsterdam as the most expensive city in Europe to rent in.
  • The average rental price of a 1-bedroom apartment in Lisbon is €2,500; in Amsterdam it is €2,300; in Utrecht it is €1,950; in Paris it is €1,800; and in Munich it is €1,755.
  • Renting a room in Lisbon already costs 550€ and in Porto 415€. These are the average values for the 2nd quarter of 2023. Which means, in the case of Lisbon, an increase of 29% in the space of a year. The capital is also the most expensive city in Europe.
  1. The lack of affordable housing creates many dramas. First of all, there are two serious ones:
  • First, the liquidation of the social elevator. Many people can’t afford to move to Lisbon or Porto, where the highest-paying jobs usually are. All because the houses are too expensive. So you kill the social elevator. People find it harder to move up.
  • Second, the departure from Lisbon. With house prices and the worsening of housing loans, people are already starting to move out of Lisbon to outlying towns. They can’t stand the prices in the capital. Another social drama.

UNEMPLOYMENT, INFLATION AND WAGES

  1. In the economy there is good news, less good news and some curiosities.
  2. Good news: the fall in inflation for the ninth consecutive month (3.1%); the fall in the unemployment rate, contributing to a new employment record (almost 5 million Portuguese employed); and a real increase in wages of 2.4%, with a greater increase in the private sector than in the State;
  3. Less good news: the fall in exports, due to difficulties in the countries of destination, namely the USA; the fall in qualified employment. In the space of a year, we have 128,000 fewer graduates working in Portugal. A drop of 7.3% due to emigration; finally, the low value of real wages. Even with a real increase in the 2nd quarter of the year, the net value of wages is, on average, 1044€. A very low value.
  4. From the data released this week, there are still three curiosities to note:
  • Teleworking: it was not born with the pandemic, but it grew with the pandemic. Now, without a pandemic, it is clear that it is here to stay: more than 909 thousand Portuguese are already working remotely (18%). It is a structural change in the traditional pattern of the labor market.
  • Precarious jobs: employment is growing, but so are precarious contracts. A growth of 13% in the 1st quarter of this year. It is better to have a precarious job than not to have one. But the increase in precarious employment is not a good sign.
  • Double employment: according to official data, there are 271 thousand Portuguese with two jobs. In absolute terms there is not much news. There have always been workers with two or even more jobs. But the number now registered is a statistical and social record.

THE WEIGHT OF THE BLACK ECONOMY

  1. A few weeks ago I presented here a topic that shocked many people: the number of strikes in CP. Today, when I present the new figures of the parallel economy, I don’t know if the shock is not even greater. The parallel economy, also called the informal or unregistered economy, is growing. Little is said about this economy that evades paying taxes. But it is strong. A recent study by the Faculty of Economics of the University of Porto has put the finger on the problem: the black economy is reaching impressive levels.
  2. Let’s take a look:
  • First, the shadow economy reached a new all-time high in 2022: 34% of GDP. After having been at 24.8% in 1996. And at 32% in 2010.
  • Second, there are 82 billion euros untaxed. Much more than the 37.5 MM€ of EU funds that Portugal has to spend until 2026. Or the 50 MM€ of funds until the end of the decade.
  • Third, a 20% tax on this amount would be enough for the State to raise revenue that would pay for all public spending on health or education. A 20% tax would give a potential revenue of 16 MM€. Health expenditure is 14 MM€ and education 9 MM€.
  1. Why this growth of the black economy? One of the reasons, although not the only one, is the too high taxes we have. High taxes are usually an incentive to “evade” paying taxes. Moreover, for many citizens, paying more taxes does not have an effective return in terms of social and public services. These reasons do not legitimize tax avoidance. But they help explain it.

THE PSD’S PONTOON

  1. Tomorrow the PSD makes its rentrée. It is the historic Festa do Pontal. This is the start of a particularly important political year for Luís Montenegro. A political year in which the PSD leader faces five major challenges:
  • Winning with an absolute majority the elections in Madeira, already in September, in which the PSD leads a coalition with the CDS. The indicators are very positive. The election is regional, but the effects will also be felt at national level.
  • Winning the European elections in June 2024. These are vital elections for Montenegro to strengthen his leadership and reverse a long cycle of PSD defeats. The last time he won was in 2015, eight years ago.
  • Choosing a strong and mobilizing list head for the European Parliament list. In the European elections, the list leaders count. And the PS will have a very popular list head: Marta Temido.
  • Consolidate the opposition by speaking firmly to the people and presenting alternative ideas and proposals.
  • Affirming its first place in the polls, after the upsurge of recent months that guarantees the PSD at least a technical tie.
  1. Tomorrow’s Festa do Pontal could be politically significant. The PSD will present its IRS reform proposal, ahead of the government.
  • Although it is not public, the PSD has for some time now created a group of economists and tax experts in charge of preparing a tax reform for the future government electoral program.
  • From the work already done, Luís Montenegro has now decided to anticipate some immediate measures to reduce the IRS, with three objectives: to raise wages, prevent the emigration of talented young people and support the middle class. In this way, he will have the political initiative and set the media agenda. This is how you make opposition and build alternative status.

THE IL’S RENTRÉE

  1. Meanwhile, yesterday the IL held its rentrée: with 10 commitments for the future. It is clear that there are two strong themes in the IL discourse: reform of the electoral system and health reform.
  • Rui Rocha, the leader of the IL, launched the theme of the reform of the electoral system. It is an important issue. I’m afraid it doesn’t say much to the people.
  • And he reinforced the issue of health, already launched by João Cotrim Figueiredo. It is the idea of creating a new Basic Law on Health. It is not an intention that can be realized because the PS has an absolute majority. But it is a good alternative idea and a popular cause.
  1. In any case, the big challenge for the IL and its new leader is the European elections. It is the first time that the IL is going to vote in European elections. These elections are, for the IL, a kind of primary for the legislative elections.
  • If it has a good result – for example, by electing two MEPs – it will have a strong case for the parliamentary elections and gain the status of privileged partner of the PSD. For that, it needs to have a good head of list in the European elections. João Cotrim Figueiredo is the most likely and strong name.

If, on the other hand, the result of the European elections is poor, this will weaken the status and undermine the future of the IL. So the political year that is now beginning is an absolutely decisive year for the IL.

Luís Manuel Gonçalves Marques Mendes, GCIH is a Portuguese lawyer and politician, and a former Leader of the Social Democratic Party. (Publish in Jornal de Negócios)

 

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