A pay-for-play residency program made Lisbon a magnet for millionaires — at the expense of locals
(Bloomberg) — For years, Maria da Conceicao voiced concerns about the living conditions of the working-class immigrants who clustered in the buildings that line the narrow streets of Lisbon’s labyrinthine Moorish quarter.
But it took a fire earlier this month to make the outside world pay attention. As smoke filled the ground-floor studio apartment, firefighters burst in to find 22 immigrant workers, mostly from India, struggling to escape. Two people died and 14 were injured.
“It’s a tragedy, but it doesn’t surprise me,” said Conceicao, 70, a resident of the neighborhood who heard the ambulances rushing to save victims of the shared apartment. “Unfortunately, this is how many immigrants live.”
The incident was a disturbing consequence of a housing crisis that has been brewing for more than a decade in the Portuguese capital. Since 2012, a property boom has turned Lisbon into one of Western Europe’s hottest markets, while a rise in short-term tourist rentals has reduced the supply of affordable options — and forced poorly-paid immigrants into overcrowded apartments.
To fight the housing crunch, Portugal’s government announced on Thursday that it would stop issuing new licenses for short-term rentals in Lisbon and other cities, and vowed to increase the supply of affordable homes. Prime Minister Antonio Costa also declared the end of the “golden visa” program, which for more than a decade had provided a pathway to residency for non-EU buyers willing to invest more than €350,000 in property in Portugal.
Foreign buyers and a explosion in short-term rental units have been blamed for surging property prices in Lisbon, where rental costs rose 36% over the past year, according to real estate website Idealista.
“The great appeal of our cities is not to turn [us] into some sort of Disneyland,” Costa, a former mayor of Lisbon, said at a press conference on Thursday. “There is no city that can remain authentic if it isn’t able to maintain its residents.”
Missing Locals
The effects of Lisbon’s runaway housing market haven’t only been felt by the most vulnerable.
More than a quarter of residents in the parish of Santa Maria Maior, which comprises most of Lisbon’s downtown area, are gone, according to parish president Miguel Coelho. Many of their former homes have been converted into short-term rentals, which now account for more than 60% of residential properties in the neighborhood.
Coelho links the exodus to a real estate boom that began after the government lifted long-held rent controls in 2012. At the time, Lisbon’s historical center was filled with decrepit and semi-abandoned buildings that landlords couldn’t afford to renovate. The hope was that removing controls would provide them with the capital to do so.
That same year, in a bid to attract investors, Portugal also rolled out the golden visa program.
“That’s when the attack began,” Coelho said in an interview earlier this month.
In the past ten years, the number of foreign residents in the country rose 40% to 555,299 people, according to the National Statistics Institute, and housing prices rose with them. According to Idealista, average home prices in Lisbon hit €3,805 per square meter in January – almost three times more than in 2015. While hikes in interest rates have caused home prices to drop in countries such as Sweden, that hasn’t been the case in Portugal.
Carla Rocha, a resident of Alfama, one of Lisbon’s oldest quarters, recently left her neighborhood because she couldn’t keep up with rising rents. Today, she can’t even find enough locals to participate in the annual Popular Saints’ Festival — a monthlong celebration reminiscent of Brazil’s carnival that fills the streets with residents and tourists at the start of each summer.“I have to search for people outside my neighborhood to join the parade,” said Rocha. “It’s sad.”
Two Worlds
As wealthy foreigners have flocked to Lisbon, the affordability gap has grown wider. Over the past decade, Portugal has become one of the top magnets for high-net-worth individuals, with an estimated net inflow of 1,300 millionaires in 2022, according to data from Henley & Partners and New World Wealth.
An April report by the country’s National Statistics Institute found that some foreigners are willing to pay more than twice as much as domestic buyers for a home in Lisbon.
For average Portuguese people, wage increases haven’t kept up with housing costs.
Between 2021 and 2022, home prices in Portugal rose a record 19%, according to data compiled by Confidencial Imobiliario. Over that same period, the gross average wage of Portuguese workers increased just 3.6%, data from the National Statistics Institute shows. Yet even if average salaries had gone up more significantly, most Portuguese workers would still be at a disadvantage – wages in the country are among the lowest in Western Europe. In 2021, the average full-time annual wage in Portugal was €19,301, compared to €28,184 in neighboring Spain, €40,135 in France and €44,404 in Germany, according to Eurostat.
“Today, even doctors and other well-paid professionals can’t afford to live in the city center,” said Coelho, the parish president.
Clara Raposo, vice-governor of the Bank of Portugal, said that “two different worlds” exist within the country’s residential housing market. While foreigners and well-off residents are able to buy homes fairly easily, “many families can’t keep up with the evolution of home prices.” Meanwhile, social housing accounts for just 2% of the total stock — one of the lowest in the EU.
End of an Era
Portugal’s golden visa program was conceived of as a way to attract foreign investment after the country’s 2011 bailout from the EU and International Monetary Fund. But the bulk of the €6.8 billion ($7.3 billion) that the program raised went into real estate instead of businesses that created jobs, according to the Portuguese Immigration and Borders Service.
Portugal also offers tax breaks to some of these foreigners — including a 20% flat tax on income or a 10% tax on pensions — under a so-called “non-habitual residency program.”
No such special treatment exists for locals.
One in every 10 Portuguese people live in homes with too little space, according to a survey carried out by the country’s National Statistics Institute. A separate December report by the Lisbon School of Architecture showed that among the city’s roughly 2.8 million residents, more than 50,000 families are living in inadequate housing conditions.Simone Tulumello, an assistant research professor of geography at the Institute of Social Sciences in Lisbon, blames the crisis on sky-high prices and a lack of social housing.“We can’t just sit on our hands and expect the market to solve all the problems,” Tulumello said of the housing problem. “It’s time for the government to face reality and start regulating the property market as well as building affordable homes.”In the wake of Thursday’s announcement, prospective investors in Portuguese real estate will also have to face a new reality.
“The golden visa program played a key role in attracting foreign investment that was important in the revival of cities like Lisbon,” said Paulo Silva, head of real estate consultant Savills in Portugal. On Feb. 14, Ireland also announced that it was closing its program.
“I guess it’s time to move on,” Silva said.
–With assistance from Blake Schmidt.
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