Illegal construction remains one of the most serious challenges to urban development in Montenegro, where, according to estimates, as much as a third of the housing stock is illegally constructed, indicating long-standing weaknesses in spatial planning and law enforcement. Therefore, it is necessary to accelerate the legalization process and, in parallel, systematically regulate informal settlements through simplified procedures and integrated improvement of infrastructure and living conditions.
The supply of social and affordable housing in Montenegro is very small, accounting for only 0,6% of the total number of apartments, while existing programs, although with state assistance, mainly push citizens towards buying apartments, instead of offering affordable rent, which makes it increasingly difficult for many to solve their housing issue.
These are some of the conclusions from the document "Country Profile of Montenegro in the Field of Urban Development, Housing and Land Management" prepared by the Economic Commission for Europe (UNECE), which is part of the United Nations (UN).
Country Profiles in the field of urban development, housing and land management are designed to help governments improve the performance of public policies in the housing, urban development and land management sector, as well as to promote sustainable development. The Country Profile of Montenegro in the field of urban development, housing and land management was prepared in response to a request from the Government, sent through the Ministry of Spatial Planning, Urbanism and State Property.
Pressure on Kotor and cultural heritage sites
The document noted that Montenegro has rapidly transformed in terms of settlement and territorial structures, under the influence of economic restructuring, demographic changes and widespread illegal construction.
"Although the total population has been roughly stable since the 1990s, Montenegro is among the fastest urbanizing countries in Europe, primarily due to population migration from rural areas to urban centers, especially in the southern part of the country. While the coastal region and Podgorica have become hotbeds of rapid growth and real estate investment, the northern region and rural areas are facing depopulation and weaker economic performance. The population structure in Montenegro remains highly fragmented, with a small number of cities with more than 20.000 inhabitants. Podgorica has over a quarter of the total population, but still does not reach the scale of large urban agglomerations evident in other parts of the UNECE region," the document states.
"The average monthly net salary does not allow for affordable housing under market conditions without significant subsidies, especially in Podgorica and coastal municipalities, where tourism and investments are further increasing demand," the document states.
It was highlighted that there is growing concern about the growing pressures on Kotor and other protected cultural heritage sites, as well as on ecologically significant areas, where the integrity of cultural and natural values is threatened by tourism development, large-scale construction projects and inadequate land management frameworks.
It was noted that the Government has also implemented initiatives to strengthen regional development and mitigate regional disparities, including fiscal support to municipalities (through the Equalization Fund) and sectoral programs aimed at strengthening the competitiveness of the economy, encouraging investment, entrepreneurship, agriculture and tourism. Significant investments have been made in the development of national and regional road infrastructure, which is essential for improving internal connectivity.
“These initiatives have yielded some results, but the key problems they sought to address persist, including spatial inequalities. In order to achieve balanced territorial development as envisaged in the Spatial Plan of Montenegro and its accompanying strategies, a more integrated, locally focused and plan-led approach to local regeneration of municipalities and settlements is needed. This implies parallel investment in social and physical infrastructure, as well as the implementation of social, fiscal and sectoral programmes. Municipal capacities are currently limited, with most local annual budgets below €1.000 per capita, which limits investment in local infrastructure and services,” the UNECE points out.
It further states that among the long-term challenges, widespread illegal construction and a large share of illegally constructed buildings prevail, which, according to estimates, account for as much as a third of the housing stock.
“The term ‘Budvanization’ is used to describe uncontrolled construction in attractive areas, such as the coastal town of Budva, and symbolizes the risks of speculative development based on the real estate market and weak construction control. The government has launched several waves of legalization, but these, in the absence of stricter control mechanisms, have encouraged new unauthorized construction. In addition, the approval rate for legalization applications has been low: from the beginning of the legalization process in 2017 to the end of 2024, a total of 3.397 illegal structures were legalized out of 62.000 applications submitted. The new Law on the Legalization of Illegal Structures (adopted in 2025) aims to reduce legal obstacles to legalization, with a clear framework for regularization and improved enforcement and accountability. The law provides for the establishment of a new body responsible for managing the legalization process at the state level, while municipalities retain the competence to resolve legalization applications at the local level,” the document states.
Recommendations for urban development
In its report, UNECE emphasizes that in order to improve urban and regional development in Montenegro, it is necessary to revise and strengthen the position of the National Strategy for Sustainable Development until 2030, and to legally integrate it throughout the work of all government bodies, while at the same time recommending that affordable housing be made an instrument of local and regional regeneration, especially in the north. An important measure is the establishment of a Territorial Development Fund to implement an integrated regeneration program, with the aim of creating quality living conditions and more polycentric national development, while accelerating the legalization reform and improving informal settlements.
It also emphasizes the need to adopt secondary legislation and technical standards that will ensure the application of urban sustainability principles in spatial planning, urban design and construction, and that the modernization of rail and public transport and green mobility are set as priorities in transport investments. Special emphasis is placed on the development of innovative mechanisms for public participation and co-creation in planning, as well as on expanding the scope of data collection at the local level, such as GDP, income and housing markets, for better monitoring of territorial inequalities and more efficient shaping of public policies.
When it comes to housing policy, it was pointed out that the housing sector in Montenegro has been significantly transformed, especially through the rapid privatization of the public housing stock during the 1990s, which resulted in dominant private ownership of housing space, a limited public stock of rental housing, and growing affordability challenges, especially for lower- and middle-income households.
Apartments are becoming increasingly difficult to access for citizens
“The construction sector remains active, but rising costs and a lack of skilled labor pose increasing constraints, with average construction costs in Podgorica reaching around 800 euros per square meter, excluding land and utilities. Housing affordability is becoming an increasing issue. Rapid growth in tourism and demand from foreign buyers have driven up real estate prices, particularly on the coast. The house price-to-income ratio is estimated at 1:8,6, more than double the affordability benchmark set by UN-Habitat. The average monthly net income does not allow for affordable housing under market conditions without significant subsidies, especially in Podgorica and coastal municipalities, where tourism and investment are further driving demand,” the document states.
UNECE recommends that Montenegro, in the area of housing policy, ensure the effective implementation of the new Housing Policy Strategy until 2034, with clearly defined measurable objectives, data systems and integrated budgeting, as well as revise the existing or adopt a new law on social and affordable housing with precise criteria and differentiated support models in accordance with different social needs.
"It is necessary to develop the rental housing sector, including social housing and affordable rental, through regulatory reforms and incentives and establish a National Housing Fund to support investments in the field of affordable housing, and strengthen the capacities and competencies of municipalities to develop local housing plans and the legal framework for the management and maintenance of residential buildings and modernize management practices," the document states, adding that data collection should be improved for the purpose of creating evidence-based public policies in the field of social and affordable housing, the document says.
Tax empty apartments
UNECE indicates that at the national level, allocations for housing care remain limited, but that institutional reforms are underway through the establishment of a national housing agency and a national housing fund, which should lay the foundations for sustainable, long-term affordable housing policies.
“The housing market is under increasing pressure on affordability, but the banking sector remains stable, while the share of mortgage loans is increasing, driven by rising wages and more favorable credit conditions. However, so far only a small proportion of transactions in the real estate market are financed through mortgages. Rents are following the growth of real estate prices, strongly influenced by predominantly short-term tourist rentals. The high share of informal rental agreements remains a significant challenge.
UNECE recommends reforming the Equalization Fund and further strengthening the financial and administrative capacities of local governments for project preparation and implementation, as well as expanding financial incentives for sustainable and affordable housing through the National Housing Fund, green mortgages and similar measures. It also points to the need to strengthen the housing market through better monitoring, taxation of empty apartments and the introduction of measures against speculation in the real estate market, while simultaneously strengthening financial mechanisms for the construction of regional infrastructure and developing a green finance system that would support sustainable investments.
Only 2.331 apartments for the most vulnerable
The UNECE indicates that the supply of social housing and affordable rental is extremely limited and accounts for only 0,6% of the housing stock - a total of 2.331 housing units in 24 municipalities. Most institutionalized housing programs, including programs implemented through housing cooperatives, the Montenegrin Solidarity Housing Fund, as well as employer-supported housing schemes, give primacy to the ownership model.
“These programs often rely on public incentives (e.g., free land and exemption from utility fees), but the long-term public benefit is diminished by the sale of apartments after distribution. The “1000+” project, a public-private initiative of subsidized loans for apartment purchases, has provided housing to 1.552 families since 2010, but also further strengthened the ownership model, instead of rental-based solutions. A new Law on Housing Support is being prepared with the accompanying Housing Policy Strategy of Montenegro until 2034, which sets strategic goals to improve the regulatory framework, housing quality, affordability and rental policy,” the document states.
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