When the impact of short-term rentals (STRs, locally known as Alojamento Local, or AL) on housing in Portugal is discussed, the debate tends to focus on Lisbon and Porto. This has been seen in recent weeks with the housing encampments, which have incensed a nationwide debate on the outrageous costs of buying or renting a home. These are the cities that dominate the headlines, attract the most visible protests, and account for much of the academic research. However, it is in the Algarve that the phenomenon has reached its most extreme proportions: the region accounts for more than 40% of all registered holiday lets in Portugal, with a density of 75 properties per 1,000 inhabitants, almost tenfold the rate in Greater Lisbon (7.9) or across the country as a whole (8.9).
In the 1960s and 1970s, the Algarve opened up to international tourism through the growth of seaside holidays and the arrival of financially-comfortable foreigners, typically of Western and Northern Europe, buying second homes. Between 1980 and 2000, tourism became increasingly mass-market, accompanied by the rapid urbanisation of the coastline. The latest wave, which began in the 2000s and gathered pace like a runaway train after 2010, has a different driving force based on a new mantra: housing is now a financial asset, not a roof over one’s head. The aforementioned asset is milked with maximum efficiency through digital platforms such as Airbnb and Booking.com, in a phenomenon that has been termed ‘platform capitalism’.
The scale of this phenomenon cannot be ignored. Between 2012 and 2024, the number of registered STR properties in the Algarve surged from almost 5,000 to just under 37,000. In 2019, STR accommodation surpassed traditional tourist accommodation, such as hotels and B&Bs, for the first time in terms of bed capacity. By the end of 2024, it accounted for around 160,000 beds, compared with 134,000 in traditional accommodation. The hotel sector, historically the backbone of tourism in the Algarve, has been overtaken by a fragmented market of properties, often managed remotely.
Another aspect deserving particular attention is the geographical distribution of the phenomenon. By the end of 2024, 34% of STR properties in the Algarve were located in rural areas, with around one-fifth of these situated in low-density territories. Municipalities such as Vila do Bispo and Aljezur, on the Costa Vicentina, have seen a particularly high proportion of their housing stock eaten up by short-term rentals, in the form of houses and apartments (16% and 19%, respectively). These figures exceed the regional average of 10.7% and are almost ten times the national average of 1.8%. In Aljezur, STR bed capacity has grown by more than 1,500% in just over a decade.
Meanwhile, the median house sale price per square metre in the Algarve almost tripled in less than 10 years, rising from €1,270 in 2016 to more than €3,100 in 2025. Rents have followed a similar trajectory. This points to a fundamental shift, with housing losing its social purpose, and increasingly becoming an instrument with which foreign investors can make a quick buck.
The problem is not tourism itself. The economic benefits of the industry are readily acknowledged, but three crucial issues must not be overlooked: the unequal distribution of those gains; the risk of replicating inland the intensive tourism model that has already saturated the coastline; and the exclusion of local communities from decisions about the places where they can live.
There is also a fundamental difference between urban areas and the rural Algarve when it comes to the institutional capacity to regulate, monitor and respond to these developments. In low-density areas, that capacity is extremely limited. When such territories come onto the radar of property investors targeting the short-term rental market, the consequences can be severe.
The policy response has been notably slow, characterised by a series of advances and reversals. The Mais Habitação (‘More Housing’) package, approved in 2023 by the previous Socialist government, was an ambitious set of measures designed to curb the impact of STR expansion on the housing market. It included an Extraordinary Contribution on Local Accommodation (CEAL), the expiry of existing licences, a suspension of new registrations in designated containment zones, and restrictions on the transfer of licences. Around a year later, the newly elected centre-right Democratic Alliance (AD) government rolled back almost all of this legislation through Decree-Law No. 76/2024, abolishing the CEAL and removing the expiry provisions for licences. This reversal was accompanied by new tax incentives for the property sector, without equivalent measures to address the structural competition between those who need a home to live in and those who use housing as a financial asset.
There is, nevertheless, room for action. The fact that this process is still at an earlier stage in the rural Algarve represents an opportunity that should not be squandered. Alongside reinstating the measures contained in the Mais Habitação package, STR registrations should be restricted to private individuals resident in Portugal. A maximum number of licences per licence holder should also be introduced, alongside carrying-capacity limits and designated zones for new construction in rural areas.
The housing crisis has multiple causes, but short-term rentals have become one of its most visible drivers, particularly in areas facing the greatest tourism pressure. The question is whether Portugal’s government is prepared to allow the same tourism model that has unjustly exploited towns along the coast to be replicated in even more vulnerable rural communities.
Source: ECO
Photo credit: Reuters
