Portugal is known for its exceptional hostels, but a new law is threatening their survival, according to industry voices.

As tourism continues to surge across Europe, locals in many cities are being pushed out by short-term rental markets. In response, one country has decided to impose legal limits on its housing sector.

Portugal’s Mais Habitação (More Housing) law, passed in parliament on July 19, aims to level the playing field for residents, but its sweeping measures are jeopardizing the future of hostels, guesthouses, and vacation rentals, according to those affected by the changes.

The law stipulates that properties categorized as ‘alojamento local’ – including small guesthouses, hostels, and short-term rental properties – will now face stricter regulations.

New businesses in this sector will be effectively halted until 2030, after which licenses will need to be renewed every five years, and heavy new taxes will be introduced. Critics argue that these changes could drive many family-run businesses out of operation and reshape the country’s flourishing tourism industry.

The law, introduced and passed by Portugal’s ruling PS party, aims to tackle the country's housing crisis. A representative from the Ministry of Housing told Dinogo, “Housing has been a top priority for the Portuguese government since 2016,” adding that the goal is to increase public housing stock from its current 2%.

“It is essential to find solutions that can respond to the evolving needs of the population, with the ultimate goal of ensuring that everyone has access to decent housing,” they stated.

“Like many other European countries, we face challenges from the immense pressure of urbanization, tourism, and real estate investment. The introduction of new, more immediate response measures aims to complement the existing strategies,” they explained.

The government spokesperson stressed that hostels and guesthouses would not be impacted by the law, which appears to target short-term rentals. However, the law itself does not explicitly exclude them and repeatedly mentions “estabelecimentos de hospedagem” (accommodation establishments), the legal term for hostels and guesthouses.

The provisions of the new law could have significant consequences for those managing alojamento local (AL) properties, including Portugal’s highly regarded hostels.

A moratorium will be imposed on issuing new AL licenses until 2030, except in ‘low density’ municipalities and parishes, and excluding detached townhouses and villas. Municipalities will also have the power to halt license issuance if they declare a housing shortage.

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

AL properties located outside low-density areas will face increased property taxes and will be subject to a new tax, starting at 15%, called CEAL.

Any new short-term rental will require unanimous approval from neighbors in order to obtain a license. “Hotels are the only accommodation type exempt from this,” says Eduardo Miranda, president of ALEP, an association for AL property owners.

The law is now in the hands of the president of Portugal, who can either approve it, veto it, or refer it to the Constitutional Court for review.

A ‘housing crisis’ of social proportions.

A government spokesperson explained to Dinogo that while tourism has contributed to Portugal’s economic recovery in recent years, it has also led to a surge in housing prices and rents, affecting both tourist hotspots and other regions, forcing families to either relocate or bear the growing financial strain.

According to officials, over 6% of properties in Lisbon and 7.4% of properties in Porto are registered as AL (short-term rentals).

Miguel Santos, a board member of the Associação Hostels de Portugal (AHdP) and owner of a hostel in Lisbon, warns that the new legislation poses a serious threat to the future of all hostels in Portugal.

“I employ 18 people – how can I run my business knowing that the license will expire in five years?” he asks. “How can I invest in renovations when I risk losing everything in just five years?”

A report by AHdP highlights that the new law could have a devastating impact on the entire hostel sector. Currently, there are 826 hostels registered as AL accommodation in Portugal, with nearly 80% of them being individually owned. AHdP also notes that about half of Portuguese hostels have shut down since the pandemic.

In a statement, AHdP has warned that the new law could lead to the destruction of businesses, the loss of thousands of jobs, and the closure of hostels in the misguided hope of solving the housing crisis – a solution that is unlikely to materialize.

Santos argues that hostels are vital not just for budget-conscious travelers today, but for the high-spending visitors of the future as well.

“They’re mainly targeting younger people, who are the ones likely to start traveling when they begin their careers,” he explains.

Allowing condominiums to revoke AL licenses without justification would leave hostels vulnerable to the whims of the condo board, leading to possible “extortion,” according to an AHdP report on the proposed legislation.

The heart of the hostel movement.

Portugal, and particularly Lisbon, is home to some of the finest hostels in the world, says Kash Bhattacharya, the owner of Budget Traveller and author of 'The Grand Hostels.'

“In 2009, I was in my 30s and thought I was done with hostels, but a friend insisted I visit Lisbon,” he recalls.

“In Lisbon, abandoned warehouses were being transformed into vibrant spaces. Artists led the way, sparking a hostel revolution. The city changed people’s perceptions of what a hostel could be, with its curated design and excellent amenities – they became destinations in their own right. If you check any list of the world’s top hostels, you’ll find eight or nine from Portugal,” he says.

Bhattacharya explains that the unique charm of Portuguese hostels lies in the fact that many are run by local families.

“There’s a deep connection to the culture. In some hostels, the owners’ mothers come in to cook for the guests. The warmth and hospitality you feel there is unlike anywhere else. After experiencing Portugal, every other place feels like a letdown,” he adds.

However, he is concerned about the future of the sector: “I don’t see how many of these businesses will survive if this law is enforced,” he says.

“A lot of businesses will shut down,” he predicts.

One hostel owner who is particularly worried about what lies ahead is Benedita Vasconcellos, who owns Lisbon’s Goodmorning Solo Traveller Hostel, named the best hostel in Portugal in 2020.

“These are going to be tough times, and I definitely foresee many hostels closing,” she says. “Some will survive, and I’m really hoping I can be one of them, but I’ll have to make some tough choices, like reducing staff and possibly raising room rates.”

Vasconcellos, 67, had planned to retire within the next five years and sell her business to fund her retirement. Under the new law, she won’t be able to transfer her license, meaning there will be no business to sell. Since she rents the hostel space, she also doesn’t own property to sell.

“It’s massive, really massive,” she says. “After 45 years of work, I’d only receive a state pension. The money I was hoping to get from selling my business to support my retirement is no longer an option.”

Uncertain futures lie ahead.

Guesthouses and B&Bs are also feeling the pressure. Filipa Aguiar opened the eight-room Bairro Alto Music Guesthouse in Lisbon in 2022 and is still paying off the costs of four years of renovations. She anticipates the new measures will lead to five-figure increases in taxes each year, with no certainty about whether her license will be renewed in 2030.

“If we close before then, we won’t be able to pay off our bills… and with all the uncertainty and rising taxes, I’m not sure we’ll be able to invest in new facilities or renovations,” she says.

“Tourists need a variety of accommodation options. Not everyone wants to stay in a large hotel,” she adds.

A deepening crisis looms.

The rise of platforms like Airbnb has been blamed for exacerbating housing shortages and soaring rents worldwide, with European city centers especially affected. Both Portugal and Spain have introduced measures to combat the issue.

With low wages and skyrocketing rents, Lisbon ranks as the third least affordable city in the world to live in, according to a study by insurance brokers CIA Landlords.

Portugal has long been a leader in regulating short-term rentals (STRs), says Eduardo Miranda of ALEP. A law passed in 2008 and updated a decade later created Europe’s first STR online registration system, legalized license cancellations for ongoing disturbances, and gave local authorities the power to limit STRs when there’s an oversupply. Currently, only Lisbon, Porto, and Ericeira have implemented such restrictions.

Under the new law, local councils will lose their ability to regulate independently, says Miranda. He describes the measures as “unjustified, disproportionate, and discriminatory,” adding that they are little more than a “marketing tactic” that won’t address the housing crisis but will cripple one of Portugal’s most vital industries: tourism.

Government documents accompanying the law reveal that it was introduced without “studies, documents, or opinions” to support the data it’s based on or assess its potential impact, a breach of standard parliamentary procedure.

A housing ministry representative told Dinogo that the law was grounded in data from the 2021 census.

Portugal has nearly 110,000 registered short-term rental properties, primarily along the coast, which account for 42% of guest nights in the country, according to ALEP data. Miranda notes that most of these are privately owned second homes, meaning that if the law forces them to stop renting to tourists, they won’t become available as housing, but will instead remain “empty for 11 months a year.”

“We’re not opposed to housing initiatives, but we are against specific measures that aren’t backed by any real data,” he explains, adding that ALEP has suggested empowering local city governments to manage housing and rental policies based on regional needs.

“A sector that generates more than 40% of national tourism accommodation deserves to be treated differently,” the association stated in a July announcement. “The success of national tourism and the country’s economy is being jeopardized.”

A government spokesperson told Dinogo that there was no intention to eliminate local accommodation or revoke current licenses.

“The goal of these measures is not to end local accommodation, but to align it with housing needs, so that, in the short term, it can contribute to increasing the available housing supply,” they clarified.

“While tourism is undeniably vital to Portugal’s economy, it’s even more important to ensure that everyone living in the country has access to decent housing,” the spokesperson continued.

Although the spokesperson assured that hostels and guesthouses would not be affected, attorney Miguel Torres Marques, a former legal advisor to Portugal’s tourism ministry who now represents ALEP, told Dinogo that it is clear these accommodations are included in the law’s scope.

“The government aims to shut down local accommodations in order to encourage long-term rentals, believing that doing so will solve the problem. But that won’t work,” he asserted.

Other industry groups have also criticized the legislation. AHRESP, a hotel association, released a statement predicting the loss of “thousands of jobs” and warned that the tourism sector faces an “enormous risk.” Mayors of Lisbon and Porto jointly condemned the government, accusing it of attempting to “wipe out” the industry and “strip away the responsibilities of the municipalities.”

In an interview with the news agency Lusa, Housing Minister Marina Gonçalves acknowledged that Portugal is “decades behind” other countries when it comes to building public housing.

She also stated, “The more local accommodation properties that close due to this new law, the greater the impact we’ll see in the housing market.”