What can the government do to ease the rental supply crisis?

It could prevent the loss of 735,000 private rented properties and £1 billion worth of taxes

What can the government do to ease the rental supply crisis?

The government can help ease the housing crisis faced by renters by scrapping a tax hike on rented housing, according to an analysis made by Capital Economics for the National Residential Landlords Association (NRLA).

The research consultancy’s analysis showed that if the Bank of England’s base interest rate was to peak at 5% and remain above 2.5% until the end of 2027, as many predicted, up to 13%, or 735,000, private rented properties could be lost across the UK compared to 2021, leading to a loss of £1 billion of income and corporation tax revenue per year for the Treasury.

Since 2021, mortgage interest tax relief for landlords has been limited to the basic rate of income tax. Research suggests that reinstating mortgage interest relief (MIR) in full for the private rented sector would help alleviate the sector’s supply crisis.  

With MIR reinstated, Capital Economics estimates that 110,000 fewer properties would be lost from the private rental market, with the Treasury gaining £400 million in income and corporation tax.

Capital Economics’ research, which comes amid a rental supply crisis, also found that scrapping the mortgage interest reforms could cut future rental inflation in the sector and reduce financial pressures on landlords planning maintenance and improvements.

The NRLA is calling on the government to undertake a full review to examine the impact of recent tax rises on the sector, saying that it should cover the effect MIR changes have had on the supply of private rented homes and the cost of accessing rented housing.

The landlords’ group said the government must also consider the rationale which underpinned the change given the Institute for Fiscal Studies previously argued it is wrong to suggest landlords have been taxed more favourably than homeowners.

“In 2015, the government said it wanted to ‘create a more level playing field between those buying a home to let and those buying a home to live in’,” Ben Beadle (pictured), chief executive at the National Residential Landlords Association, recalled. “In doing so, it hiked costs for responsible landlords and totally ignored the burden it would create for renters.

“In the midst of an unprecedented cost-of-living crisis, the government needs to put economic reality before political pride and reverse this travesty of a reform. Tax hikes on landlords, exacerbated by rising interest rates, have deepened the supply crisis.

“As this research demonstrates, the situation is unlikely to improve until and unless it is reversed. A radical rejection of these damaging policies is necessary to help stem the tide of lost rental properties, limit rent rises, and boost Treasury revenue.”  

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