How Lisbon made itself irresistible to tourists – and became the least affordable city in Europe

The Guardian

25-06-2025

Over the past decade, Lisbon has undergone a dramatic transformation – from one of the most affordable capitals in Europe to the most unaffordable.
Between 2014 and 2024, house prices in the city rose by 176%, and by more than 200% in its central historic districts. The home price to income ratio, a key indicator of housing affordability, reflects this shift with stark clarity: today, Lisbon tops Europe's housing unaffordability rankings. This trend extends to the national level. In 2015, Portugal ranked 22nd out of 27 EU countries for housing unaffordability. Today, it ranks first. In a country where 60% of taxpayers earn less than €1,000 a month, finding a rental below that price in the Portuguese capital is only possible if you're willing to live in 20 sq metres – or less.
To understand how Lisbon reached this point, we need to look back to the years following the 2008 global financial crisis. As part of its shock plan to revive the economy, Portugal embraced a strategy of aggressive liberalisation, aiming to put Lisbon – and the country – on the global map for real estate investment and tourism. The government implemented a familiar neoliberal formula: rental laws were relaxed, making evictions easier and tenancy agreements shorter; generous tax incentives were introduced for non-resident buyers, including the now controversial 'golden visa' and 'non-habitual resident' programmes; and investment funds were actively encouraged to enter the property market, benefiting from additional tax exemptions.
At the same time, both the hotel industry and the short-term rental sector were promoted, alongside initiatives to attract visitors, digital nomads, international students, and transient young professionals from other countries. In the historic centre of Lisbon, Airbnb-style rentals have reached dramatic levels: half of all homes hold a short-term rental licence, and in the most tourist-saturated neighbourhoods, that figure climbs to 70 out of every 100. When measured against the city's population, the number of short-term rentals in Lisbon represents a density six times higher than in Barcelona and 3.5 times higher than in London. Meanwhile, the number of hotels has tripled since 2010 – from around 100 to 300 – and the city council has already approved plans for around 50 more. This is a trend playing out across European cities and in southern Europe residents are pushing back as seen in the recent protests.
These changes happened in a global context of low interest rates in which affluent people increasingly turned to housing as a place to park their savings. For this type of individual investor, buying properties in Lisbon was a win-win: they could acquire assets to use as second homes in an attractive destination and obtain rental income while they are not in the city, while benefiting from both the appreciation of the property value and tax benefits. Storing of wealth in housing drives up prices as investors are willing to pay premium prices for safe assets – the median price of transactions made by foreign buyers in Lisbon is 82% higher than the price paid by domestic buyers.
Before 2008, gentrification was largely absent from many central Lisbon neighbourhoods – areas primarily inhabited by poor, elderly residents living in deteriorating buildings. Investment certainly brought building rehabilitation, but it didn't translate into residential stability. Despite the improvements, the centre of the city lost 25% of its population between 2011 and 2021. Across the municipality, of the dwellings built or renovated between during this period, only 56.5% serve as primary residences. The rest are either vacant, used as second homes, or converted into short-term rentals.
All this contradicts the neoliberal supply and demand story as the escalation of property prices is not linked to an actual demand for homes to live in and the formation of new households. Instead, what we see is that Lisbon is now on the radar of investors who use housing as a financial asset: a process where real estate is produced not to meet residential needs, but to maximise returns. In a context shaped by a flexible rental law, local landlords have capitalised on this shift, engaging in rentier practices by steadily raising rents and extracting increasing value from a shrinking pool of habitable homes.
The result is a city that welcomes foreign wealth but excludes many of its own citizens, prioritising the desires of global consumers over the needs of local communities. The current housing crisis reflects a stark disconnect between wages and property prices – with housing costs approaching those of global cities in a country where salaries remain among the lowest in Europe. Beyond tourists, central Lisbon is now primarily occupied by a transnational class of young, mobile professionals – the new gentrifiers. Meanwhile, locals are increasingly being pushed out or forced to adapt by renting rooms instead of entire flats. At the same time, a growing share of household income is being consumed by housing costs, deepening social inequality and widening the gap between landlords and the broader population.
Contrary to the neoliberal myth that the market alone can meet the needs of the population, Lisbon offers yet another example of market failure – at least for those who see housing as a place to live with dignity.
Agustín Cocola-Gant is a research fellow at the Institute of Geography and Spatial Planning, Centre of Geographical Studies, University of Lisbon