Portugal // The legacy of the Contraption – The wretched housing situation~ 13 min

This is one of four articles we’re going to publish about the legacy of the “Contraption” (Geringonça). These articles are mostly aimed at our external audience, which many times gets a completely erroneous idea of the supposed “economic miracles” happening in the country, when in fact we are still firmly in the hands of the good old neoliberal center (and the national debt creditors). For those unfamiliar with Portuguese politics, a few basic notions to keep in mind relative to the entities referred to in the article:

Contraption – The nickname of the government formed by the Socialist Party, with parliamentary support from the Left Bloc and the Unitary Democratic Coalition (Portuguese Communist Party and the Ecologist Party “The Greens”). Initially a derogatory term, it kind of stuck and is now somewhat ambiguous. Governing since 2015, with new elections scheduled for October 6.

Socialist Party (PS) – One of the two neoliberal center parties that alternate in power. The gentler face of capital, with the Social-Democratic Party acting as its foaming at the mouth counterpart. The name is a historical artifact from the post 1974 revolution period, when capital needed to promote a more “moderate” force to pull the rug from under the more revolutionary parties. Pushing the country right ever since.

Social-Democratic Party (PSD) – As described above, the B side of the neoliberal center. For those times when capital loses its patience and vast privatization and austerity programs need to be forcefully implemented while keeping a sociopathic facade of pious suffering for the “sacrifices of the Portuguese families”. Usually cooperates with CDS; the government preceding the Contraption was a coalition between these two parties.

Democratic Social Center (CDS) – Like PS, CDS also has a funny story involving the 1974 revolution. The funny part is that they used to be fascist collaborators that suddenly discovered the virtues of democracy and humanism after the revolution. Shares an umbilical cord with the Catholic Church and the charity mafia. The kind of party that appeals to the brick-stupid rural bourgeoisie and the petty bourgeoisie that goes into apoplexy anytime anyone tries to touch their risible private property. If you know a landlord that would push an old lady down the stairs just so he could charge an extra 100€ from the next tenant, odds are he would be a CDS voter.

Left Bloc (BE) – A bloc of minor left parties that lives mostly on chasing media coverage. Its support base is the cosmopolitan petite-bourgeois and labor aristocracy suffering from a guilty conscience. Concerned with civil and human rights and absolutely convinced that “the State is all of us”.

Unitary Democratic Coalition (CDU) – A coalition between the PCP and the Ecologist Party “The Greens”. The latter is usually described as the watermelon party – green on the outside, red inside.

Portuguese Communist Party (PCP) – One of the most organized and responsible governing forces in Portugal, or at least its political adversaries keep saying so – the question remains if that is a good thing. Works in tandem with the biggest national trade union confederation, CGTP. Its inaction or inability to halt the degradation of the living conditions hasn’t exactly helped it capture the working vote.

People, Animals, Nature (PAN) – “Neither left nor right” party, for veganism and animal rights. Recently entered parliament. Shares its support base with the Left Bloc, which explains why they are always sniping at each other. What happens when the middle class sheds its guilty conscience and opts instead to embrace misanthropic ennui.

By Humberto Palma

Between 2011 and 2015, the right to housing was one of the most attacked by the right-wing government that preceded the Contraption. Four years have passed since a left-backed government came to power. Housing prices continue to rise. In 2019, renting a home was on average 41% more expensive than it was in 2015. Meanwhile, the national minimum wage only rose 19% over the same period. The families that took out mortgage loans back when it was presented to them as the best solution are seeing their debts sold from one financial institution to another in millionaire transactions. Even when defaulting was caused by misfortune, such as illness or unemployment.

Looking for a home: buying or renting?

The three main solutions available for those looking for a home in Portugal are a state social rental, private rental or purchasing a residence. However, social housing only represents 3% of the total housing stock. A consequence of decades of reduced direct public investment in housing. We are mostly left with a housing system based exclusively on private property. Those in need of accommodations have two options: resorting to a private rental or purchasing a residence, which entails a debt to a bank.

Tourism and speculation

Portugal is living through a curious time of touristic popularity, with prizes piling up and the number of tourists growing with each passing year. Quoting the Portuguese Secretary of State for Tourism, this “is not a phenomenon, it is the result of years of investment” by the State. This tourist explosion obviously has consequences.

Tourist accommodation competes directly with housing for working residents in the cities. In August 2019 there were 88 634 tourist accommodations throughout the country, most of which are concentrated in the Algarve region (over 33 000) and in the cities of Lisbon (over 23 000) and Oporto (over 10 000). The Portuguese capital is the European city with the most houses converted into tourist accommodations per inhabitant.

This explosion came at a time when the laws regulating the housing market were more permissive and aimed at benefiting property owners. In 2012, the PSD / CDS (right-wing)  government approved an amendment to the New Urban Rental Regime (NRAU – Novo Regime de Arrendamento Urbano). This amendment to a 2006 law would become known as the “Lei Cristas” (Cristas Law), in reference to the name of the Minister of Territorial Planning at the time, a member of CDS.

Its supposed aim was to promote urban regeneration by liberalizing the rental market. To do so, it lifted rent controls which had frozen the oldest rents. These were mostly located in the historical centers of the cities.

It also created a tool to evict tenants without needing to go through the bureaucratic hassle of a court of Justice – the National Rental Counter (Balcão Nacional do Arrendamento or BNA) – which specializes in expediting evictions. Interestingly, tenants wishing to oppose an eviction still have to go to court.

As the said former minister proclaimed a few days ago, “the right to property prevails over the right to housing” And so it was. After the law came into force, there were brutal increases in the older contracts. It mainly affected low-income working people, retirees and pensioners. 

The BNA expedited more than 4300 evictions between 2013 and 2018. And there was a rise in rents, especially in the center of the Lisbon and Porto metropolitan areas. According to Deutsche Bank, Lisbon is currently the European city with the highest wage effort required to pay rent and the sixth in the world.

During the current government, some of the previous government’s measures were reversed, mainly protecting the elderly over the age of 65 and people with more than 60% disability. Some changes have also been made to render the landlord-tenant relationship less unbalanced, even though the BNA remains. 

It would be untrue to say that such changes don’t make a difference. Just as it is undeniable that the rental market liberalization has amplified the consequences of a tourism explosion; when the potential rent from a plot of land is much higher than the current rent, that will surely be a most desirable investment opportunity for capital. If it becomes easier to evict whoever is in the way, the quicker this process will occur.

However, these changes are like trying to put out a fire while throwing more firewood into the bonfire. On the one hand, investment in tourism has continued. But mainly because private investment in real estate is still being promoted. This offers no guarantees that the allocated money will be used to make affordable houses available to working people in detriment of other investments with higher capital return.

Two examples that illustrate the government line on the matter are the establishment of Investment and Real Estate Management Companies – Portuguese REITs (Real Estate Investment Trusts) – along with the continuation of the golden visas program. 

Portuguese REITs were approved in July 2019. They can be described as investment funds that profit from property rental for residential or non-residential purposes – a kind of mega landlord. These will certainly contribute towards increased housing pressure, along with being more interested in renting to “better quality tenants”, such as companies.

Golden visas allow foreign investors to obtain temporary residence visas in exchange for investments in national territory. Between 2016 and 2018, 4174 golden visas were granted, which corresponds to 60% of the total visas issued since 2012 – when they emerged. From the 4622 million euros of accumulated investment since the first year of the program, over 90% is associated with real estate. 

From home buying to debt purchases

As Guilhotina.info reported in September of last year, many working families are seeing their debts be sold to investment funds. In addition to buying nonperforming loan portfolios, these funds are capable of extorting money, taking the houses and returning them to the bustling real estate market.

The sale of nonperforming loans comes at the recommendation and obligation of the  European Central Bank and the Bank of Portugal (the Portuguese Central Bank). It is presented as a banking sector economic sustainability measure. In 2018, the largest Portuguese banks sold 5.7 million euros of nonperforming loans. Including Caixa Geral de Depósitos, the Portuguese public bank whose management is appointed by the government, as is the Board of Directors of the Bank of Portugal.

However, the human side of this transaction is a tragedy for many families. From January to June, the Portuguese consumer protection association DECO received about 17 000 requests for help from people struggling to repay their loans (64%) or already defaulting on their payments (36%). From those already in default, one in nine were dealing with entities outside the banking system. Probably a debt collection company working for or property of one of several investment funds operating in the country.

It is important to note that the majority of Portuguese households’ debts are mortgages and their default is often the result of force majeure conditions such as unemployment or illness. In 2013, more than 80% of total household debt corresponded to mortgage loans. The percentage is so high because during the previous decades both the economic environment and public policy incentivized purchasing a home. Around 75% of Portuguese are homeowners. 

Whether in the number of evictions, the selling of debt portfolios to investment funds, or the banks themselves doing direct credit recoveries with no intermediaries, the industry seems to be flourishing. The number of certified enforcement agents more than doubled, with an increase of 114% between the pre-crisis and 2018.

Public policies: a stimulant for private rentals?

According to SIC (a Portuguese private television channel), the backlog of social housing applications exceeded 32 000 in 2019, as a result of the current housing crisis. However, the number of homes available is only 1% of this number.

What has been the government’s response? A whole range of public policies that give the private rental market the responsibility of solving the crisis.

For instance, the Affordable Rental Program allows a landlord to get tax benefits when renting a home or part of it below market price and adjusted to the tenant’s income. However, these rents are still unbearable to most people with low incomes. After two and a half months of this program coming into existence, only 30 rental agreements were established. 

The Key in Hand Program places the State in charge of managing the property of those who live in an a real estate “pressure” area that have decided to go live in the countryside. Rents are adjusted according to the Affordable Rental Program while the landlords continue to receive a large fraction of the rents.

The Door 65 Youth Program allows young people (up to 35 years old), single or couples, to receive from the State in cash a fraction of their rent. Through the tenant’s bank account, that money will go directly from the State to the pocket of landlords. 

The only two major policies that go beyond promoting private rentals are the 1st Right and the Almada West Housing Project.

The first is a municipal funding program for implementing local strategies. There is no guarantee that this public investment will be used to promote social rental from the State or aimed at those with lower incomes. This depends on the choices of municipalities. The last program represents a large direct public investment in housing and predicts the construction of a total of 3500 public households for social rental, of which 1100 should be ready by 2023. Almada is located on the other side of the river from Lisbon.

Considering the market’s ineffectiveness in providing housing under dignified and affordable conditions for those who depend on working for a living, these seem to be the best measures. But what do these 3500 public residences in Almada mean in the medium term, along with a few more homes financed by 1st Right in the rest of the country? Not much. Almost nothing, when compared to the over 23 000 homes which are now local accommodation for tourists, in the Lisbon region alone. Or the 32 000 social housing applications currently pending across the country.

The metropolitan pass and the purge of the city center

In April 2019, six months before the elections, the Contraption implemented a metropolitan pass that reduced the expenses of public transportation users in Lisbon and Porto. For a single monthly payment of 40€ for individuals and 80€ for families, it is now possible to use the entire public transportation network in the respective metropolitan areas of these two cities.

In truth, many of these are transports are private operators, which will be compensated by the State for their “losses” with the implementation of this new pass via 104 million euros from the Environmental Fund and payments from municipalities. It’s just another public-private partnership that uses public money to pave over the holes created by the lack of a congruent public transportation policy.

Taking into account that the national minimum wage is only 600€ and that some of the previous transportation passes could cost almost 160€ per month, the measure had a big impact on workers’ wallets.

But more than just a transportation measure, it was also a way to ease the purge of the working population from the city center and clear the way for capital while at the same time calming down the social contestation brewing among those trapped between trying to live near their workplace and save time and money on transportation but be robbed blind by their landlord; or be ejected to the periphery, where the rents are lower but you have to spend a quarter of your salary on passes, plus enduring two hours of commute every day.

Note: A new Base Law for Housing came into effect on October 1st. It was deliberately excluded from this article because its major implications will only be felt in the next legislatures. It also deserves a fuller analysis than what can be accomplished in this overview.