Home prices in Puerto Rico are rising at a staggering pace, signaling growing strength in the U.S. territory’s economy while also severely straining affordability for local residents.
Overall home values in Puerto Rico jumped 11.6% in the first quarter of 2025 compared with a year ago, far surpassing the annual price growth in any U.S. state, according to data from the Federal Housing Finance Agency.
It followed a 22% surge in home values on the island in the final quarter of 2024, the largest annual gain in FHFA records dating to 1995.
Tax incentives to lure wealthy new residents, a strong infrastructure recovery after Hurricanes Irma and Maria, and a boom in tourism and short-term rentals have all contributed to Puerto Rico’s housing market boom.
Rising home prices also reflect high construction costs on the island, a reality that has reduced the incentive for developers to focus on affordable housing, leaving many local families priced out.
Still, home prices in Puerto Rico are relatively affordable in comparison with the U.S. mainland, a factor that helps explain the influx of outside buyers and investors in recent years. (Puerto Rico is a self-governed U.S. territory, allowing free movement without a visa between the island and the U.S.)
In the first quarter of 2025, the median home sales price in Puerto Rico was $290,000—up 32% from a year earlier, but still far below the U.S. median sales price of nearly $398,000 for that period, according to the Stellar multiple listing service, which covers the island.
Puerto Rico’s housing boom is a sharp reversal after more than a decade of home price weakness on the island following the 2008 financial crisis, a trend that was exacerbated by devastating hurricanes in 2017 and a government debt crisis that resulted in a bankruptcy filing that same year.
Mass emigration driven by high unemployment caused the island’s population to shrink by 17% from 2004 to 2018, leaving rental vacancies high and home prices soft due to the lack of buyers.
Since 2019, however, Puerto Rico’s population has stabilized. Net outmigration slowed dramatically during the COVID-19 pandemic, as the number of people leaving decreased while the number moving to the island rose.
Tax breaks draw wealthy newcomers to Puerto Rico
Among the newcomers to the island are wealthy investors and individuals attracted by lucrative tax breaks that Puerto Rico offers new residents who meet certain conditions.
The tax incentives, known as Act 60 (formerly Act 22), grant new residents total exemption from local taxes on investment income such as dividends or capital gains. Due to Puerto Rico’s territorial status, that income would also be exempt from U.S. federal taxes.
Conditions for the tax exemption include purchasing a house in Puerto Rico within two years, residing in Puerto Rico for at least six months each year, and contributing at least $10,000 annually to a local nonprofit.
Critics of the island’s tax breaks say they have disrupted Puerto Rico’s housing market, while enabling wealthy Americans to evade taxes.
The “influx of wealthy Americans seeking tax breaks has oversaturated the housing market, driving up housing prices and reducing availability for long-term residents,” House Democrats wrote in a resolution last fall taking aim at Puerto Rico’s tax incentives.
Still, it’s also likely that many of the new residents moving to Puerto Rico have strong family ties to the island, and are returning from the mainland in search of relatively more affordable homes.
Puerto Rico’s unemployment rate has fallen sharply in recently years, averaging below 6% in 2024 for the first time in at least a half-century. The combination of improved job opportunities and relatively cheaper homes has likely drawn back some native Puerto Ricans from the mainland.
Short-term rentals boom on the island
Another key factor fueling Puerto Rico’s soaring housing prices has been the boom in short-term rentals through sites such as Airbnb and Vrbo.
The number of short-term rentals in Puerto Rico has exploded to more than 25,000 in 2023, up from about 1,000 in 2014, according to a report commissioned by the Hispanic Federation.
The boom in vacation rentals has driven up home prices and exacerbated a housing shortage on the island, a separate report from Puerto Rican think tank Center for a New Economy found.
Using statistical analysis, CNE showed that a 10% increase in the vacation rental share of total housing in a given Puerto Rico census tract results in an average increase of 7% in the median rent, 23% in median home prices, and 0.1% in housing sales volume in the following year.
“With so much to offer visitors, tourism will always be an important part of Puerto Rico’s economy. However, it cannot come at the expense of Puerto Rico’s residents and communities,” said Frankie Miranda, president and CEO of Hispanic Federation.
The group has recommended several regulatory reforms to rein in vacation rentals on the island, including requiring them to register as businesses and raising the room tax from its current 7% to a range of 9% to 11%.
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