Portugal’s hostels are world class. But, they say, a new law threatens their existence

As Europe buckles under the weight of ever-increasing tourism, and locals in city after city are squeezed out by short-term rental properties, one country has decided to impose legal restrictions on its housing market.

Portugal’s Mais Habitação (More Housing) law, which was approved in parliament on July 19, seeks to make the housing market more of an even playing field for residents – but its broad brushstrokes are threatening the future of hostels and guesthouses, as well as vacation rentals, say those in the industry.

The law states that properties classed as “alojamento local” – “local accommodation,” which includes guesthouses of under 10 rooms, as well as hostels and Airbnb-style properties – will now be subject to strict new rules.

New openings will effectively be blocked until 2030, and after that, operational licenses will have to be renewed every five years. They will also be subject to hefty new taxes that, some say, will see many family-owned businesses going bust, transforming the country’s growing tourist industry.

“It is necessary to find answers that can adapt to the needs felt at each moment by the population, with the ultimate objective of ensuring that everyone has access to decent housing,” they added.

“We have, as well as other European countries, challenges with the enormous urban pressure, tourism and real estate investment and the approval of a new set of more immediate response measures is intended to complement the existing [measures].”

The government spokesperson insisted that hostels and guesthouses will not be affected by the law, which seems intended to target short-term rentals. Yet nowhere in the law does it confirm they are excluded – and the law repeatedly refers to the measures affecting “estabelecimentos de hospedagem” (“accommodation establishments”), the legal terminology for hostels and guesthouses.

The new law’s resolutions could potentially have far-reaching effects on those running alojamento local (AL) properties – including Portugal’s world-renowned hostels.

It will put a moratorium on issuing new AL licenses until 2030, other than in “low density” municipalities and parishes, and excluding detached townhouses and villas. Municipalities will also be able to suspend licenses being issued if they declare a housing shortage.

After 2030, licenses will be renewed every five years, at the discretion of the local authorities. Condominiums will also be able to revoke AL licenses for properties within them by a majority vote.

AL properties outside of low-density areas will also see their current property taxes increase, and be subject to a new tax starting at 15%, known as CEAL.

And any new short-term rental will need unanimous approval by the neighbors in order to acquire a license. “The only [accommodation type] that escapes is hotels,” says Eduardo Miranda, president of ALEP, an association of AL property owners.

The law is now with the president of Portugal, who can either approve it, veto it or send it to the country’s Constitutional Court.

A ‘social emergency’

Portugal’s housing crisis has seen residents take to the streets in protest this year, with activists calling it a “social emergency.” The country is one of the poorest in Western Europe, with a minimum wage of 760 euros ($838) per month, and more than half of workers making less than 1,000 euros ($1,103) monthly, according to Reuters. Meanwhile, rents in Lisbon alone have increased by 65% since 2015, including a hike of 37% in 2022.

Over 6% of Lisbon properties and 7.4% of Porto properties are registered as AL, they said.

The new legislation threatens the future of all hostels in Portugal, says Miguel Santos, board member at the Associação Hostels de Portugal (AHdP) and owner of a Lisbon hostel.

“I have 18 employees – how can I manage a company knowing the license will expire in five years?” he says. “How can I renovate thinking that in five years I can lose it all?”

Santos estimates that with the new CEAL tax, which is calculated on property size, a hostel of 2,000 square meters would end up paying around 60,000 euros (nearly $66,000) per year in extra taxes – which would be impossible for many small businesses.

A report produced by AHdP warns that the legislation has the “potential to devastate the entire sector.” There are currently 826 hostels registered as AL accommodation in Portugal, of which nearly 80% are individually owned. AHdP data also suggests that roughly half of Portuguese hotels have ceased operations since the pandemic.

The AhdP has warned in a statement that it could cause “destruction of business fabric, thousands of jobs and the closure of establishments in the hope that housing supply will be created – which will not happen.”

Santos says that hostels are crucial not only for budget travelers now, but for the higher spenders of the future.

“They’re more focused on young people and those are the ones who start traveling when their career is at the start,” he says.

By allowing condominiums to cancel AL licenses without a reason would put hostels “at the mercy of the condominium” and lead to “extortion,” an AhdP report on the new legislation claims.

The center of the hostel world

Portugal, and Lisbon in particular, has world-class hostels, according to Kash Bhattacharya, owner of Budget Traveller and author of “The Grand Hostels.”

“In 2009, I was hitting my 30s and thought I was done with hostels, but a friend said I had to go to Lisbon,” he says.

“There, all these abandoned warehouses were being renovated. Artists took over and kickstarted the hostel revolution. People’s perceptions of a hostel changed in Lisbon, with their curation, design and facilities – they became destinations. Every time you look at lists of the top hostels in the world, eight or nine will consistently be in Portugal.”

Bhattacharya says that what makes Portuguese hostels special is the fact that many of them are run by local families.

“There’s a sense of connection with the culture – you have hostels where the owners’ moms come in and cook dinner. There’s a sense of being welcomed that you don’t get anywhere else. After Portugal, everywhere is a disappointment.”

But he fears for the sector: “I don’t see how many of them will survive if this law becomes reality.”

‘A lot will close’

One hostel owner fearing for the future is Benedita Vasconcellos, who owns Lisbon’s Goodmorning Solo Traveller Hostel, voted Portugal’s best hostel in 2020.

“It’ll be difficult times for sure, and I definitely see a lot of hostels closing,” she says. “Some will survive, and I’m really hoping I can, but I’ll have to make changes, like cutting staff numbers and maybe increasing the room rates.”

Vasconcellos, 67, says she was planning to retire within the next five years, selling the business to fund her retirement. Under the new law, she won’t be able to pass her license – meaning there would be no business to sell. She rents the hostel premises, so doesn’t have property to sell, either.

“It’s huge, really huge,” she says. “I’d only get a state pension after 45 years of work. All the money I wanted to get from selling my business to help my retirement would never be possible.”

Uncertain futures

Guesthouses and B&Bs are also feeling the pinch. Filipa Aguiar opened the eight-room Bairro Alto Music Guesthouse in Lisbon in 2022 and says she is still paying for four years of renovations. She estimates that the new measures will see her facing five figures in extra taxes each year, with no guarantee that her license will be renewed in 2030.

“If we close beforehand, we won’t repay the bills… and with all the uncertainty and taxes, I don’t know if we’ll be able to invest in new amenities or refurbishments.

“Tourists need diverse accommodation. Not everyone wants to stay in a big hotel.”

A growing crisis

Of course, the rise of Airbnb has been blamed for housing shortages and rocketing rents across the planet. In European city centers the problem is especially acute. The governments in Portugal and Spain have both introduced measures to tackle the problem.

Low wages and high rents make Lisbon the world’s third-least viable city to live in, according to a study by insurance brokers CIA Landlords.

Portugal was already a “pioneer” in regulating short-term rentals (STRs), according to ALEP’s Eduardo Miranda. A 2008 law, updated a decade later, created Europe’s first STR online registration system, legalized license cancellation on proof of continuous disturbance, and gave local authorities power to restrict STRs when there is a surfeit. Only three cities have currently implemented restrictions: Lisbon, Porto and Ericeira.

With the new law, councils lose that right to self-regulation, says Miranda, who calls the measures “unjustified, [disproportionate] and discriminatory” and a “marketing maneuver that won’t solve the housing issues, but will destroy a big part of one of the most important industries in Portugal: tourism.”

Government documents attached to the law noted that it was submitted with “no studies, documents or opinions” about the data on which it is based, or its possible impact – a move which fails to comply with normal parliamentary procedure.

There are nearly 110,000 registered short-term rentals in Portugal, mostly on the coast, which account for 42% of guest nights in Portugal, according to ALEP data. Miranda says that the majority are privately owned, and are second homes – meaning that if the law forces them to stop renting to tourists, they won’t become housing stock, but will revert to being “empty 11 months of the year.”

“We’re not at all against housing packages – we’re against specific measures that are not based on any kind of data,” he says, adding that ALEP has proposed giving more powers to city halls, so that each administration can direct housing and rentals depending on the situation.

“A sector that contributes more than 40% of national tourism accommodation deserves to be treated differently,” the association wrote in a statement in July. “The success of national tourism and the country’s economy is being called into question.”

“The spirit of the measures in this matter is not to put an end to local accommodation, but rather to make it compatible and harmonize with housing needs, in order to, in the short term, increase the supply available for housing,” they said.

“if it’s true that Portugal’s tourism industry is crucial for our country, it is even more crucial to guarantee decent housing for everyone who lives in Portugal,” they continued.

“The government wants to close local accommodations to try and promote long-term rentals, and is convinced that by closing AL it will achieve that objective. That will not happen,” he said.

Other sectors of the industry have criticized the law. AHRESP, an association of hoteliers, has also issued a statement predicting the loss of “thousands of jobs” and warning that the tourist industry was running an “enormous risk.” The mayors of Lisbon and Porto have issued a joint statement accusing the government of trying to “exterminate” the industry and “confiscating responsibility from the municipalities.”

In an interview with news agency Lusa, Marina Gonçalves, the housing minister, said that Portugal is “decades behind” other countries in terms of constructing public housing.

She added “The more that come from this number [of AL properties that might close down with the new law], the better response we will have in the housing market.”