Francisco Seco, Associated Press
LISBON, Portugal — The peaceful retirement of Teresa Dourado is about to be shattered.
The 77-year-old widow raised two children with her husband in their fourth-floor apartment behind Lisbon's Campo Pequeno bull-ring. It has been the family home since 1966. Living alone there now among black-and-white photographs of her children and with her husband's framed paintings, she pays a controlled rent of €100 ($128) a month. That just about allows her to get by on her monthly pension of €414.
But Portugal is scrapping its long-standing rent controls in one of the government's most radical economic and social reforms since the ailing country needed a €78 billion bailout last year, when it was engulfed by Europe's financial crisis. Critics say the anticipated rent hikes from next month could price thousands of families out of their homes. At the very least, the change — aimed at boosting and modernizing the economy — will add to the financial burden on those struggling to cope with pay cuts and tax hikes designed to ease the country's crippling debt load.
"I'm already having trouble paying €100," says Dourado. "I don't want charity. I've worked all my life. I shouldn't have to beg for anything."
The new rent law casts aside protections that date from the early 1900s, and are seen as one of the reasons for Portugal's economic decay. It's all part of a plan to jettison a way of life that has been handcuffed to the past, holding back the dynamism needed to put the nation on the path of growth. The measure, long delayed due to its political toxicity, also illustrates how Europe's financial crisis is snatching away old certainties and expectations — in this case, over something as basic as having a roof over your head.
The change in rent laws was one of the steps demanded in return for the financial lifeline provided by foreign lenders. They identified rent controls as one of the handicaps keeping Portugal mired in stagnation. Similarly, their insistence on labor reforms is taking away long-standing entitlements, such as jobs for life, which choked development, consigning Portugal to low growth and mounting debt. These are precisely the kinds of measures that have triggered massive protests across Europe in recent years, raising questions about the viability of the European project.
The goal of the new law is to free up rental accommodation, making it easier for workers to seek jobs around the country. It also aims to help people avoid racking up mortgage debt; put prime real estate to more productive uses; encourage owners to renovate buildings that are crumbling because they don't earn enough rent money; and provide work for hard-up construction companies.
Rent controls have long enabled those on a low income to live cheaply in one of western Europe's poorest countries. The minimum salary, earned by more than 600,000 workers, is €485 ($624) a month before tax. The average salary is around €800 ($1,030). That compares with the U.S. minimum wage of $1,317 a month and an average monthly wage of $3,500.
Portugal's rent controls aren't unique in Europe. Germany and the Netherlands, for example, also place some modest limits on rent increases. But their laws are nowhere near as old, comprehensive and rigid as in Portugal, where lifelong contracts with minimal, inflation-linked rent hikes have been handed down through generations.
The government says the new law contains safeguards for low earners. Increases in the rents paid by people like Dourado will be limited to between 10-25 percent over the next five years before full liberalization.
Even so, the scale of the threat to many residents is huge. Last year's national census showed about 250,000 families are in houses with old contracts, which will now come up for price review. That's about 1 million people — or almost 10 percent of the population.
Romao Lavadinho, president of the Lisbon Tenants' Association, has held dozens of public meetings to explain the new law to worried tenants. In one, hundreds of people packed into Lisbon's Sao Jorge cinema on the capital's main avenue.
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