Funchal Approves New Short-Term Rental Regulations as Madeira Tackles Housing Pressure

The Funchal city council unanimously approved a new regulatory framework for short-term rentals on Thursday, marking the latest effort by a Portuguese municipality to balance tourism revenue with housing affordability. The proposal will undergo 30 days of public consultation before being submitted to the Municipal Assembly for final approval.

3,600 Properties and Counting

Funchal, Madeira’s capital and most populous city, currently has approximately 3,600 registered short-term rental properties, known in Portugal as alojamento local (AL). The sheer volume has prompted growing concern among residents about the impact on the local housing market, particularly as rental prices climb beyond the reach of many Madeiran families.

Speaking to journalists after the council’s weekly meeting, Funchal mayor Jorge Carvalho outlined the new rules. The regulation aims to “safeguard the interests of those who live in collective housing, limiting short-term rentals in those areas,” he said.

However, the framework is not a blanket ban. Carvalho emphasised that properties resulting from the rehabilitation of existing buildings and any new construction built exclusively for tourist accommodation will remain fully permitted. The distinction targets the conversion of residential apartments in shared buildings, where neighbours often bear the consequences of constant guest turnover.

Licence Freeze Until July

New AL licences in Funchal have been suspended since earlier this year, with the moratorium set to last until July. The new regulation, if approved following public consultation and the Municipal Assembly vote, would replace the temporary freeze with a permanent framework.

The unanimous vote, crossing party lines in a council composed of PSD/CDS-PP, JPP, independent, and PS members, signals broad political consensus that the status quo is unsustainable. It also reflects a pattern seen across Portugal’s most tourism-dependent cities.

A National Trend

Funchal joins a growing list of Portuguese municipalities imposing controls on short-term rentals. Lisbon pioneered containment zones in 2019, Porto has introduced area-based restrictions, and several Algarve municipalities have explored similar measures. The national government’s Mais Habitacao legislation gave local authorities greater powers to regulate AL activity, and cities are increasingly using them.

The issue cuts to the heart of Portugal’s housing crisis. Tourism contributes significantly to the economy — hotel construction alone is set to add 70 new properties and 7,520 beds by 2028, as reported this week — but the conversion of residential stock into visitor accommodation has reduced supply in cities where demand already outstrips availability.

What Expats and Investors Should Know

For foreign residents in Madeira and those considering investment, the new rules carry practical implications. Existing AL licences will be grandfathered in, but anyone planning to convert a residential apartment in a shared building into a short-term rental may face restrictions once the regulation takes effect.

Purpose-built tourist accommodation and rehabilitated properties remain viable investment paths. Madeira continues to attract international buyers drawn by the island’s climate, relative affordability compared with Lisbon, and established expat community.

The 30-day public consultation period offers residents, property owners, and industry stakeholders an opportunity to submit feedback before the framework is finalised. Those with properties in Funchal’s collective housing buildings should pay particular attention to the consultation details once published.