Lisbon Grapples with Housing Affordability as Government Cuts Landlord Taxes
Lisbon is facing a significant housing crisis, where the cost of living is increasingly clashing with local salaries, creating a challenging environment for residents. While the city is celebrated by tourists, a growing affordability gap is reshaping its real estate market. The average salary in the Portuguese capital stands at approximately 1,500 euros, a figure that is often insufficient to cover the high rental costs, with single rooms frequently priced between 500 and 600 euros per month.
This economic pressure has led to a noticeable shift in the urban landscape. Many long-term residents are finding themselves unable to afford rent and are moving out of the city. Consequently, traditional homes are frequently converted into short-term tourist accommodations, or 'Alojamento Local'. This trend is altering the character of historic neighborhoods and straining the housing supply available to the local population, a key point of analysis in our Real Estate Market Insights Blog.
In an effort to address the housing shortage, the Portuguese government has announced a series of measures. One of the most significant is a reduction in the income tax (IRS) for landlords. For rental contracts with a monthly value of up to 2,300 euros, the tax rate has been lowered from 25% to 10%. This policy is intended to incentivize property owners to place more units on the long-term rental market. However, the corresponding benefits for tenants are more limited, consisting of a gradual increase in the maximum allowable tax deduction for rent, from the current 700 euros to 900 euros in 2026 and 1,000 euros in 2027.
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Critics of the new measures argue that while the situation for landlords has improved, the changes do little to resolve the immediate affordability crisis for tenants. The fundamental issue, according to local housing advocates, remains a lack of sufficient housing supply and rental prices that are disconnected from local wages. The government's strategy appears to focus on supply-side incentives, a move that will be closely watched by those tracking market trends.
The ongoing debate also touches on the need for more employment opportunities that offer salaries commensurate with the rising cost of living in Lisbon. As young professionals qualify for skilled jobs, they are met with a housing market that remains out of reach. The city's challenge is to balance its appeal as a global tourist destination with its function as a livable home for its citizens. The success of these new governmental measures will be a critical factor in determining the future direction of Lisbon's property market. Stay informed on Lisbon property market developments at realestate-lisbon.com.