Lisbon landlords are attributing the ongoing housing crisis not to tax policies or fiscal measures, but to restrictive rental legislation that discourages property investment. While government initiatives aim to ease the burden on renters, property owners argue that fundamental legal reforms are needed to unlock a sufficient supply of available housing and stabilize rental prices.
The debate centers on the balance between tenant protections and landlord incentives. Luís Menezes Leitão, president of the Lisbon Landlords Association (ALP), asserts that the current legal framework is extremely draconian for landlords
, creating significant risks and disincentivizing property owners from entering the rental market. This sentiment challenges the prevailing narrative that tax breaks or adjustments to income tax rates on rental income will be the primary solution to Portugal’s housing affordability issues.
Recent discussions have focused on a potential reduction in the income tax (IRS) rate applied to rental income, from 25% to 10% for rentals up to €2,300 per month. However, a report by the Technical Support Unit of the Budget (UTAO) suggests that such a reduction could significantly decrease state tax revenue, potentially undermining efforts to control rental prices. The UTAO estimates the overall fiscal package for housing will exceed €300 million.
Leitão dismisses the notion that a change in the IRS rate is the key to unlocking the rental market. The risk of rental prices increasing has nothing to do with the IRS,
he stated. The only risks that exist relate to the rental legislation that has not yet been altered.
He believes that lowering the tax burden could incentivize more property owners to offer their properties for rent, thereby increasing supply and, theoretically, lowering prices. However, he emphasizes that this effect is contingent on a broader legislative overhaul.
The core issue, according to the ALP, is the difficulty landlords face in regaining possession of their properties. The current legal system makes it exceedingly difficult and time-consuming to evict tenants, even in cases of non-payment or breach of contract. This perceived lack of legal recourse creates a significant risk for landlords, discouraging them from participating in the rental market. Leitão explains that if people stop paying, it’s almost impossible to get them out of the house, except after several years
, which acts as a great disincentive
.
This lengthy and complex eviction process, combined with other legal hurdles, creates what Leitão describes as a teia enorme
(a huge web) of risks associated with rental contracts. The lack of a streamlined process for landlords to recover their investment, even at the end of a lease, further exacerbates the problem. He points to the absence of a straightforward legal mechanism for landlords to purchase the property back from the tenant at the end of the contract as another significant flaw.
While acknowledging the importance of fiscal support measures, the ALP argues that they are insufficient without accompanying legal reforms. Tax support is always important and we agree with it, but it’s not enough,
Leitão asserts. The essential thing to effectively combat rising rents is to re-flexibilize the legislation. It’s the only situation that can be put forward on this aspect.
He believes that a more balanced legal framework, offering greater security and predictability for landlords, is crucial to increasing the supply of rental properties.
The current situation is not simply a matter of financial incentives; it’s a matter of perceived risk. Landlords, facing a legal system that heavily favors tenants, are increasingly reluctant to invest in the rental market, leading to a contraction in supply and, higher rental prices. This dynamic is particularly acute in major urban centers like Lisbon, where demand far outstrips supply.
The implications extend beyond individual landlords and tenants. A shrinking rental market can stifle economic growth, particularly for businesses that rely on a readily available workforce. It can also exacerbate social inequalities, making it increasingly difficult for lower-income individuals and families to find affordable housing. The Portuguese government faces a complex challenge in balancing the needs of both landlords and tenants to create a sustainable and equitable housing market.
The debate highlights a broader trend in European cities facing housing crises: the tension between tenant protections and the need to incentivize property investment. While strong tenant rights are essential to ensuring fair housing practices, overly restrictive regulations can inadvertently discourage landlords, leading to a decrease in supply and ultimately harming the very people they are intended to protect. Portugal’s experience serves as a cautionary tale for other countries grappling with similar challenges.
Looking ahead, the Portuguese government will need to carefully consider the recommendations of the ALP and other stakeholders as it seeks to address the housing crisis. A comprehensive approach, combining fiscal incentives with meaningful legal reforms, is likely to be necessary to unlock the rental market and ensure that affordable housing remains accessible to all.
