It's not so simple. For one thing, it's a very old city that is already full of buildings. Unless you want to raze buildings and rebuild (the most extreme form of gentrification, and also the way to ruin the historical charm), there's really not place to build new housing. You have to go quite some distance from the city center to find space. And then you need a lot of new transportation infrastructure to make it attractive/possible to get from the new available housing to the city center.

And just as it is difficult to build more housing in an already full city, upgrading or building new transportation infrastructure is very difficult and costly (and disruptive for years to the people currently living there).

There's really little that can be done to balance things. When "everyone" decides that Lisbon is cool (and it is!), they all want to visit. So naturally any apartment or building owner who can convert from local long term rentals to tourist short term rentals (at many X the price) will just based on the profit potential.

And when property companies realized this, they began buying whatever they could - both as a good long term investment in the real estate itself, and for pretty great tourist income.

Many places in the US and elsewhere in the world have the same problem.