I have always had a soft spot for Alfama. It is one of those neighbourhoods that makes Lisbon feel unmistakably Lisbon: steep streets, small squares, laundry lines, the sound of life echoing off centuries-old stone. But when I walked through Alfama last week, I left with a very different feeling.

It was not pleasant.

And I do not say that lightly. Alfama felt dirty and unkept in a way I have not associated with it before. The streets were packed, the foot traffic felt chaotic, and the atmosphere had shifted from “historic neighbourhood” to something closer to a permanent tourist corridor. In places, it also felt as though the volume of visitors had attracted the wrong kind of activity—people who show up because crowds create opportunity, and because the area has become, in parts, less controlled and less cared for.

This is not a complaint about tourism in general. Lisbon benefits from visitors. But Alfama is a case study in what happens when short-term rental policy and incentives accelerate change faster than a neighbourhood can absorb it.

How we got here: when Airbnb licences were easy, property prices followed

The surge in Alfama property prices did not happen in a vacuum. It followed a very specific pattern:

1. Alojamento Local (AL) licences were relatively easy to obtain for years, particularly compared to the complexity of traditional hospitality licensing.
2. As tourism demand rose, short-term rental income became the highest-paying “use” of many apartments in central Lisbon.
3. Buyers began underwriting purchases based on that short-term rental yield—meaning they could justify paying more, which pushed prices up. This trend is confirmed by data from sources like the Portuguese National Statistics Institute (INE).
4. As more units converted to short-term rentals, long-term housing supply tightened, and that pressure flowed through the market.

What it looks like on the ground: a neighbourhood that starts operating like a transit hub

In theory, short-term rentals bring “investment” into old housing stock. In reality, when a neighbourhood becomes dominated by rotating guests, the neighbourhood changes in ways you cannot hide with fresh paint.

Walking through Alfama last week, the impacts felt tangible:

• The turnover is constant. The rhythm of daily life—the sense that people live there and keep watch over it—feels weaker. This can be a challenge for those seeking cultural adjustments when moving.
• The streets feel overrun. The neighbourhood’s infrastructure was never designed to handle that level of volume all day, every day.
• The incentives shift. Landlords optimise for visitor revenue, businesses optimise for visitor spending, and the parts of a neighbourhood that serve residents start disappearing. This is a key risk for first-time buyers looking for a stable community.
• Care declines. When fewer people have long-term attachment to a place, the public realm can degrade—litter, noise, stress on public services, and a general sense of “fraying.” This directly impacts the property quality and living experience.

That is what I felt: not simply “busy,” but worn down.

The government’s plan: reduce short-term rentals and push housing back into long-term use

The positive news is that this is not being ignored anymore.

Portugal has updated the national framework in a way that gives municipalities more power to regulate Alojamento Local, and Lisbon has responded with stricter rules designed to curb short-term rentals in saturated areas and gradually push neighbourhoods back toward a healthier balance.

In plain terms, the direction is:

• Fewer new AL registrations in high-pressure zones
• Stronger containment rules where AL concentration is already high
• A policy objective to reduce saturation in the most impacted historic areas, a topic covered in our Policy Analysis section.
• A shift in incentives so that more properties return to the long-term rental market.

That is the heart of the rebalancing strategy: make it materially harder for already-saturated neighbourhoods to keep converting homes into tourist inventory, and encourage a gradual return to residential housing.

Why this matters: restoring Alfama to a higher standard is not only about housing

To me, the conversation is bigger than “Airbnb vs. residents.” Alfama’s long-term value—socially, culturally, and economically—depends on whether it can remain a functioning neighbourhood, not simply an accommodation zone. Our guides on legal processes often touch on the importance of neighborhood stability for property value.

If the city is serious about raising Alfama back to a high standard, it requires two things in parallel:

1) Housing reallocation: more long-term residents, less constant turnover

When people live somewhere for years—not days—they care. They notice what is changing. They hold the line on behaviour. They create stability. Engaging with English-speaking real estate agents can help new residents find their footing.

Converting a portion of short-term inventory back into long-term rentals is not just a housing policy. It is a neighbourhood policy.

2) Public realm investment: cleanliness, enforcement, and infrastructure

Even if housing policies work, Alfama will not feel “fixed” unless the daily experience improves.

That means visible investment in:

• sanitation and waste management
• maintenance of streets and public spaces, sometimes requiring historic restoration experts.
• enforcement around nuisance behaviour, a topic related to agent and seller issues.
• lighting and safety
• managing tourist flows in narrow corridors

If those things do not improve, the neighbourhood will continue to feel overwhelmed—regardless of what the licensing framework says. This is a key aspect of sustainability in urban development.

My view: Alfama can recover, but only if enforcement matches policy

I left Alfama last week disappointed, because it felt like a neighbourhood losing its dignity under the weight of its own popularity.

But I do think the direction is changing. Lisbon is signalling—more clearly than before—that the city is willing to impose real constraints on AL saturation and push the system back toward long-term housing and livability. Global firms like Knight Frank have noted similar trends in other world-class cities.

The outcome now depends on follow-through: enforcement, inspection capacity, and consistent public realm investment. Regulation sets the intent. Execution determines whether Alfama becomes a high-quality historic neighbourhood again—or remains a place that tourists pass through and residents avoid. Finding the right property may require help from specialized real estate agencies.

For Lisbon’s sake, and for Alfama’s, I hope the city treats this moment as a reset—not a patch.