Exemption or illusion? The impact of a youth tax policy on house asking prices in Portugal

Abstract Affordable housing has become an increasing challenge for young individuals in Portugal, where rising house prices and precarious employment conditions hinder homeownership. To address this barrier, the Portuguese Government introduced a tax exemption for individuals under 35 purchasing their first home. However, while the policy aims to improve housing affordability, it may paradoxically drive house prices up by boosting demand and influencing sellers' pricing strategies. This study examines sellers' reactions to the policy announcement using the synthetic difference‐in‐differences methodology and monthly data on the asking price per square meter growth rate from January 2023 to December 2024, with Spain serving as a natural control. The findings show a significant rise in asking price growth, suggesting sellers priced in the tax exemption. This increase was strongest in Lisbon and Oporto, lower‐income areas and where more buyers were eligible, pointing to an uneven market response shaped by local conditions. On average, the tax savings will be offset in 3 to 15 months depending on the housing price range. The unintended consequences of the tax exemption highlight the risks of implementing demand‐side measures without corresponding supply‐side adjustments.