A Temporary Halt Amid a Growing Housing Crisis
In response to mounting concerns over housing availability and rising tensions within local communities, the City of Funchal has taken decisive action: a six-month suspension on issuing new short-term rental licenses (commonly known as Alojamento Local, or AL) for apartment buildings.
This measure, announced by Mayor Cristina Pedra on August 7, aims to mitigate the impact of short-term tourist accommodation on the city’s residential housing stock. The suspension is expected to be ratified by the City Council and the Municipal Assembly in September.
What Does the Short-term Rental Ban in Funchal Cover?
The short-term rental ban in Funchal is limited in scope but significant in effect:
- Applies only to apartments in multi-family buildings
- Does not affect detached houses or individual room rentals
- Duration: Six months, pending further regulatory reform
The goal is to reduce housing pressure in specific Funchal zones and allow the municipality time to update its local AL regulations.
Why Now? Political Controversy and Explosive Growth
The suspension follows a political scandal involving subsidised subsidies in the Residências CORTEL I development. Initially intended for low-income residents, several of these units were found to be operating illegally as tourist rentals. The opposition coalition Confiança brought the issue to light, calling for immediate revocation of the licenses.
Mayor Pedra confirmed an internal investigation is underway, which is expected to conclude within two weeks. However, she emphasised that egal procedures, including prior hearings with affected property owners, must be followed.AL Saturation in Funchal: The Numbers. Funchal currently has 3,184 active short-term rental establishments, offering approximately:
- 9,000 beds
- 6,000 rooms
- Capacity for up to 15,000 guests
This means AL represents more than 25% of the city’s entire accommodation capacity, raising concerns about tourism’s crowding-out effect on long-term residents and rental prices.
A Market Running Hot
Between 2022 and 2025, the number of AL registrations in Funchal soared by 182%. May 2025 alone saw 1.15 million overnight stays in Madeira, with AL accounting for a staggering 19.3% year-on-year increase, outpacing hotels and other accommodations.
Legal Tools and Local Autonomy
Thanks to a recent amendment in Portuguese national law, municipalities now have the authority to regulate short-term rental activity within their borders. Funchal is one of the first cities in the Autonomous Region of Madeira to act under this new power, reflecting a growing trend toward localised governance.
Looking Ahead: Regulation Beyond the Election Cycle
The municipality plans to overhaul the AL framework to introduce stricter controls in high-density neighbourhoods. However, Mayor Pedra acknowledged that the full implementation of a revised regulatory regime will unlikely occur before the current council’s mandate ends.
Final Thoughts
Funchal’s AL license freeze signals a turning point in the balance between tourism and residential life. While tourism remains vital to Madeira’s economy, local officials are now drawing firmer lines to protect housing affordability and community well-being.
As the regulatory review unfolds, residents and investors will be watching closely. The outcome could set a precedent for how other municipalities in Portugal, especially island territories, tackle the challenges of overtourism and housing pressure.
Interested in legal and tax guidance on AL regulations or real estate investment in Madeira? Contact Madeira Corporate Services for expert support in navigating regulatory shifts.
The founding of Madeira Corporate Services dates back to 1996. MCS started as a corporate service provider in the Madeira International Business Center and rapidly became a leading management company… Read more
