Lisbon has long been suffering an affordable-housing crisis brought on by foreign investment, real estate funds, lifestyle migrants, intrepid travelers “discovering” the city, and landlords quickly learning they can earn far more renting with Airbnb than to long-term locals.
And then Covid-19 hit. And there were no more tourists to fill all these short-term rentals, or, as they’re officially known in Portugal — when they are legally registered, that is — alojamento local. The landlords were hit hard, with many of them deep in debt from buying and renovating apartments on loan to rent to the tourists.
This summer, Lisbon’s mayor, Fernando Medina, proposed a solution that would tackle both problems at once. In an op-ed in the British online newspaper The Independent, Medina proposed a plan to address the city’s affordable-housing crisis while simultaneously rescuing owners of holiday rental apartments badly hurting in the midst of the global pandemic.
“Essential workers and their families have increasingly been forced out as Airbnb-style holiday rentals have taken over a third of Lisbon’s city centre properties, pushing up rental prices, hollowing out communities and threatening its unique character. Now we want to bring the people who are Lisbon’s lifeblood back to the centre of the city as we make it greener, more sustainable and ultimately, a better place to both live and visit,” Medina wrote. “Prioritising affordable housing for the hospital staff, transport workers, teachers and thousands of others who provide our essential services is possible. We’re offering to pay landlords to turn thousands of short-term lets into ‘safe rent’ homes for key workers.”
Medina was referring to Programa Renda Segura (PRS), a city council initiative that our source in the Câmara Municipal de Lisboa (CML) tells us has been in the works for close to a year now. But the program was fast-tracked in response to the dramatic drop in tourism since the onset of the pandemic.
Under the program — open to all property owners in Lisbon — landlords essentially lease out their apartment to the CML for a period of five years, with the city council guaranteeing that the landlords will receive a monthly rent during that entire period.
The city, in turn, places these dwellings in the Programa Renda Acessível (PRA), a city program aimed at middle-income and low-income households that offers below-market rental rates to qualifying tenants.
The PRS has come under great scrutiny by local housing activist groups who view it as a bailout for Airbnb property investors — considered by many in this city as being the primary drivers of the dramatic housing shortage in Lisbon. Affordable housing advocates are, understandably, especially angry because the project is being paid for entirely with public funding.
Our contact in the CML, who asked to remain anonymous, says that the PRS has a budget of 15 million euros, which is estimated to ensure the availability of 1,000 properties. As these homes will be rented out on the PRA at lower rates than that which the city is paying for them, the PRS is expecting to operate at a loss of 4 million euros yearly.
The Câmara Municipal de Lisboa clarified that “[four] million euros is the maximum amount that CML has budgeted, annually, to subsidize the difference in price it pays to owners and what it charges for the sublease in the regime de Renda Acessível. It does not mean that CML spends [four] million. For that, the Programa Renda Segura will have to have an excellent response, but that is the maximum amount that CML has to finance the program.”
Meanwhile, landlords joining the program don’t just get guaranteed rent. Those who adhere to the PRS will be exempt from paying IMI (Portuguese property taxes), as well as IRS or IRC (income taxes) on the rental income received for the entire duration of their lease with the CML.
The most attractive trait for holiday rental owners is that they will be exempt from capital gains if transferred to the long-term rental market through this program. Many owners are not aware that when they sell or shift a property from functioning as a short-term rental, they pay capital gains tax for every year the lodging functioned as a holiday rental. So the PRS is a good way to avoid that, although landlords would forfeit the license to operate as an alojamento local, which has been a deterrent for many, according to our source at CML.
To date, the PRS has accepted a total of 177 viable applications from landlords, and 34 contracts have already been signed. Our source in the CML also says that some property holders were allowed to finish off the summer season in the holiday rental sector and will sign with the CML in the fall.
But all the perks and benefits haven’t attracted the large number of Airbnb and other short-term rental transfers the CML had hoped for. Of the residences accepted into the PRS, less than one-third are former holiday rentals.
It appears that such landlords are still not quite ready to throw in the towel and submit to the long-term rental market. In an interview given to Jornal de Negócios in August, the president of the Associação do Alojamento Local em Portugal (ALEP), Eduardo Miranda, said that “property owners are making an effort to wait for the market to pick up, but this isn’t possible for everyone, as some have mortgages to pay, they are opting to rent on the mid-term sector, or for transitional purposes.” Landlords are essentially seeking other options to maintain a rental income and have the flexibility to return to Airbnb once tourism picks up again.
Nevertheless, it remains to be seen how long they will be able to hold out, as cancelation rates continue to be high. Instituto Nacional de Estatística (INE) reported that 74% of holiday rentals reported canceled reservations in the Lisbon Metropolitan Area during the period of June to October this year.
While the PRS is not gaining traction among its target audience, it has been growing in popularity among other city councils throughout the country. The city of Porto is in the middle of implementing its own equivalent program called “Porto com Sentido.” In addition, several other city governments interested in developing a comparable program in their cities have contacted the CML, our source says.