Lisbon City Council is introducing measures to turn Airbnb-style homes into affordable housing. But with many short-term rental owners holding out for tourism to return, the city’s new program has yet to attract many owners.
Under the so-called “Safe Rent” program, Lisbon is offering to pay as much as three years of rent up front to lure property owners—many of whom have seen their rental income evaporate due to coronavirus-related travel restrictions—to switch their short-term rental units into long-term lets for locals. Property owners may earn a maximum of 1,000 euros a month ($1,170) for a four-bedroom apartment in the city center, plus a little extra if they leave their furniture behind, and their rental income will be exempt from taxes, according to the rules of the program.
“Many short-term property owners have delayed a decision to switch to long-term renting because they were waiting for reservations to pick up in the summer,” said Eduardo Miranda, head of the Association of Local Accommodation in Portugal, or ALEP. “This hasn’t happened yet and many of these owners may be considering other alternatives at the moment, including the safe rent program in Lisbon.”
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One of the main reasons why property owners aren’t switching to longer term rentals even though reservations of short-term rentals in Lisbon in the second quarter have fallen to less than 10% of the level of bookings in the same period last year is that they may be obliged to pay hefty taxes when they transfer their property from a short-term rental to a long-term let, according to Miranda.
“The short-term rental market had a very important role in enabling the city of Lisbon to respond to the rising tourist demand,” said Fernando Medina, the mayor of Lisbon, in a televised interview on July 7. “It also had a big role in rehabilitating the city,” he said. Reforms in recent years have brought investment and a boost to the property market, giving incentive for landlords to convert run-down buildings into short-term holiday listings hosted by companies such as Airbnb. According to the Lisbon City Council, there are about 25,000 apartments registered as short-term rentals, accounting for about 8% of the total. However, in some historic neighborhoods, short term rentals account for more than 20% of housing units, prompting the Lisbon City Council in 2019 to suspend new short term rental licenses in certain areas.
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now a well planned
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in a few years”
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Portugal’s capital city is also looking to renovate and convert vacant public buildings into safe, affordable homes and accelerate the speed of construction permit approvals to make it easier for residents to live in the center.
For decades, properties across Lisbon were falling apart due to strict government-enforced rent controls that deterred landlords from making improvements. Along with high tax rates targeting the housing market, it often just didn’t seem worth selling a property. All that began to change after Portugal sought a bailout in 2011 and decided to scrap rent controls and offer resident permits in the form of a golden visa to attract wealthy foreign residents and property investors. At the time, about 12,000 buildings were in poor condition or in ruins, nearly 20% of the total, according to city council estimates. The program, which is still in place, allows non-Europeans who pay at least 500,000 euros for a property in Portugal to qualify for a resident permit.
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Earlier this year, Portuguese Prime Minister Antonio Costa announced plans to scrap the golden visa program in Lisbon and the northern city of Porto in a bid to end speculation in the real estate market. Other European cities like Budapest, Paris, Amsterdam and Madrid are also imposing stricter terms on such rentals in order to reclaim urban neighborhoods from tourists. Berlin has opted for more extreme measures, freezing rents for five years in a bid to stay affordable.
The property boom that began after Portugal completed the bailout program in 2014 has turned Lisbon into one of Western Europe’s hottest markets, with a rise in short-term rentals catering to tourists. Derelict buildings like this one in Alfama—the city’s historical neighborhood—were converted to luxury hotels.
In 2019 Lisbon was named Europe’s leading city break destination at the World Travel Awards. Tourism accounts for one in every five jobs in Portugal and 16.5% of gross domestic product, according to the World Travel & Tourism Council. But there are signs of overtourism—since 2016 Portugal has welcomed more tourists than residents (16.3 million / 10.3 million in 2019).
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The success of the capital has driven house prices up by 64% in the first quarter of the year compared with the first quarter of 2017, according to the National Statistics Institute, outpacing wage growth. However, there are signs that the housing market is cooling. Rent prices in Lisbon fell 6.9% in the second quarter from the previous quarter, according to Confidencial Imobiliario. That’s the biggest drop since Confidencial Imobilario started collecting data on Lisbon’s rental property market in 2010. Home prices in Portugal are expected to drop 2.5% this year due to the economic effects of the Covid-19 pandemic, according to S&P Global Ratings.
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The improvements to the city have come at a high social price. “As rental and property prices increased, many locals left the city center,” said Romao Lavadinho, president of the Association for Lisbon Tenants. Lisbon’s Alfama district, a historic neighborhood with narrow cobbled streets, was the subject of a comprehensive survey by researchers Agustin Cocola-Gant and Ana Gago from Universities of Lisbon and Porto between 2015 and 2017. Today, Alfama is often pointed out as an example of the consequences of overtourism in Lisbon.
Prior to the financial crisis, tourism was still an emerging industry and there were no hotels or holiday rentals in the neighborhood. By 2016, the proliferation of short-term rentals had changed this once working-class residential place into a popular tourist area. Over the two-year study period, the share of housing stock occupied by short-term rentals had increased from 16% to 25% with 150 flats sold.
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Homes sold in case study area, 2015-16
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More than half of the 21 apartment blocks sold were converted entirely to short-term lets. The researchers found no instance of any of the 130 apartments rehabilitated during the period having entered the long-term residential market.
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Local landlords who ceased renting to tenants and listed their flats on Airbnb
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Buy-to-let investors
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The touristic use of housing stock severely reduces the supply of apartments available for long-term occupation to such an extent that people are unable to find units offered in the private rental market. While the decision to sell the family flat may be voluntary, there is evidence to suggest that homeowners selling their flats in tourist areas do so less to take advantage of better opportunities, and more so with resignation, because tourism disruptions affected their health and daily well-being.
While rising property and rental prices have pushed some of Lisbon’s residents to the outskirts, it also left hundreds of low-income families stuck in makeshift shanty towns and decrepit buildings far from the glitzy condominiums in the city center.
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To make things worse, social housing accounts for just 2% of the stock of rental units in Portugal, compared with 20% in Austria, 17% in the U.K., 14% in France and 4% in Spain. A recent outbreak of new coronavirus infections in some of these poorer neighborhoods has brought to light some of the social disparities in the city, which has been made worse due to the recent housing boom.
Medina, the mayor of Lisbon, hopes his “Safe Rent” program will provide 1,000 new homes for residents to return to the city center. “The government has said it is available to double that number if there is enough interest from the property owners of short-term rentals,” said Medina. “Our aim is to provide affordable housing and support property owners who, realistically speaking, won’t have a great deal of demand for their units in the near future.”
So far, the Lisbon City Council, which plans to sublet these units to locals at a lower price, has approved 177 property owners interested in joining the program. For Carla Costa Reis, who manages a Facebook page with more than 70,000 members about the short-term rental market in Portugal, the reason why many property owners aren’t joining the program is because they don’t trust the Lisbon City Council.
According to data from Airbnb, Portugal was the country with the 10th greatest economic impact on a list of 30 countries which was headed by the U.S., followed by France and Spain. Airbnb also claims users of the platform in Portugal generated 2.3 billion euros in direct economic impact during 2018, and around 10 million euros of tourist tax to the Lisbon chamber.
But now tourism in Portugal has come to a halt. A recent spike in new coronavirus cases in Lisbon and Portugal’s controversial exclusion from the U.K.’s air bridge program means that the owners of some of these short-term rentals may have to wait longer for their bookings to pick up. According to the National Statistics Institute, the tourist accommodation sector registered just 150,000 guests for the month of May, a 95% decrease from a year earlier. Revenue from accommodation declined by 97% to 11 million euros.
The share of nights that Airbnb listings in Lisbon are booked over the next 90 days has risen to 17.8%, according to AllTheRooms Analytics, which could be a promising sign of a slow recovery for hosts. However future bookings are still 60% below July 2019 levels.
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“It’s not about the price. If you consider the tax breaks, some property owners that are in a more fragile situation could effectively consider the rents that are being proposed,” said Costa Reis, who is also the founder of Turisma, a Lisbon-based company that manages short-term rentals. “The fundamental problem has to do with a lack of trust. There hasn’t been one serious measure to tackle the housing problem in Lisbon that doesn’t include attempts to push the short-term rental market against the wall through containment zones for short-term rentals or higher taxes.”