According to INE data, the average variation of the price index, excluding housing, in the last 12 months to August was 5.43%, a value that serves as the basis for the coefficient used for the annual update of rents for the following year , under the New Urban Lease Scheme (NRAU) and that represents 5.43 euros extra for every 100 euros rent.
However, the effective rent updating value will not be determined until INE publishes the final data referring to the August 2022 CPI on September 12.
The 5.43% rent increase in 2023, applicable to both urban and rural areas, follows the 0.43% increase this year, following the 2021 freeze (due to the negative variation in the price index) and increases in 0.51% in 2020, 1.15% in 2019, 1.12% in 2018, 0.54% in 2017 and 0.16% in 2016.
What does the law say about rent increases?
By law, rental values are generally subject to annual updates that are automatically applied depending on inflation. The NRAU stipulates that INE is responsible for determining the rent update coefficient, which must be included in a notice to be published in the Diário da República by October 30 of each year to take effect.
Only after publication in the Diário da República owners can announce the rent increase to tenants and the increase can only take effect 30 days after this notification.
According to the rental law, the first update may be required one year after the entry into force of the contract and one year after the previous update, with the lessor the coefficient of update and the new income resulting from this calculation.
If they do not want this, landlords are not obliged to apply this update.
However, according to the NRAU, rents prior to 1990 have been updated as of November 2012, allowing you to increase older rents through a landlord-tenant negotiation process. If they are subject to this extraordinary update mechanism, they are exempt from a new upload.
Government says it is aware of ‘concerns’
“The government is following the concerns expressed on this issue, in particular by the various associations in the sector,” an official source from the Ministry of Infrastructure and Housing told Lusa.
“At this point, the matter is still under investigation,” he added.
The Prime Minister, António Costa, has announced that an extraordinary meeting of the Council of Ministers will be held next Monday to approve a package to support household income, given the fallout from inflation.
When asked by Lusa whether these support measures could curb the rent increase, Pedro Nuno Santos’ office did not provide any further details.
What do tenants say about rising rents?
The chairman of the Lisbon Tenants Association (AIL) has classified a rise in rents due to inflation as “unaffordable” and is demanding the government create a “braking standard” that prevents the update from exceeding 1% by 2023.
“If the value of inflation in view of rent increases is 5.43%, in our view it is completely unaffordable for most families,” Romão Lavadinho told Lusa.
Romão Lavadinho states that AIL does not accept that when updating rents, the inflation value that usually serves as a reference is taken into account, and explains that this association defends that the increases do not exceed 1%.
“What we think is that the government should issue a brake rule to prevent increases from exceeding 1%,” he said, stressing that this value was determined taking into account the 0.9% salary increase for the civil service in 2022 and that the AIL already in June defended this measure to the government.
For Romão Lavadinho, a 5% rent increase is “unaffordable not only for lower-income families, but for all families in general”.
“In some cases, that meant people had to pay 13 months’ rent. But that is not possible”, the chairman of AIL insisted.
And the owners?
Landlord associations are refusing to take measures to stop rent increases based on the inflation indicator, as it is up to the government to take measures to resolve any tenants’ difficulties.
The president of the National Home Owners Association (ANP), António Frias Marques, recalls that the coefficient for updating rents has “been provided for in law” for many years and has never been changed, and sees no reason why landlords should not apply it , bearing in mind that they too are affected by the rising cost of living.
“If everything has gone up, why shouldn’t rents go up too? We see no reason why this should not happen,” António Frias Marques told Lusa, emphasizing that with a rent of 400 euros, the expected increase (taking into account the known inflation value) will be about 21 euros, i.e. the equivalent of about “half the price of a bottle of gas”.
To Lusa, Diana Ralha, of the board of directors of the Association of Owners of Lisbon, began to remind that in the universe of ALP employees, a minority are those who can take advantage of this rent update coefficient, which, she emphasized, do not even take housing costs into account.
In view of the general price increase, and bearing in mind that “landlords and owners do not live in a bubble” and also “are hit” by high inflation, Diana Ralha believes that those who have contracts that allow them to increase the value of the rents in light of this coefficient, will do so.
But, he added, the owners are also “common sense” people who will evaluate any situation because they don’t want to lose tenants with whom they have a long-term relationship and who don’t cause them problems.
As for the possibility – as the Lisbon Tenants’ Association defends – that the government intervenes to freeze rent increases or to set ceilings lower than the value resulting from the coefficient provided for in the law, both the ANP and the ALP are completely against .
“We see no reason to let this happen”, a “freeze would be complicated” because everything is “increasing all the time”, landlords are also “faced with cost increases every year”, said António Frias Marques, who shot: “if you want to for example to freeze, freeze the price of a gas cylinder”.
“A proposal for a freeze or a ‘small increase’ is equivalent to an invitation to decree the downfall of landlords,” said the chairman of the ANP.
António Frias Marques also recalled that legislation has been in place since 2015 to grant an income subsidy to people who prove they do not have the income to pay it, but it has never been regulated. “It’s time to do that,” he said, stressing that it is up to the government to solve these social problems.
While she believes that updating rents as a result of this coefficient will not lead to social unrest, Diana Ralha, for her part, insisted that it is up to the state to support tenants who may not be able to cope with the increases.
In that context, he recalled INE data indicating that most leases have an average rent of less than 400 euros.