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Tax hit to rental housing is causing a supply crisis in the PRS

Government efforts to dampen investment in rental housing are fuelling a supply crisis in the private rental sector, hiking rents and also making homeownership more difficult to afford. 

That’s the warning from the National Residential Landlords Association (NRLA) as data shows demand for rental property is at a record high. Since 2015 the Government has embarked on a deliberate effort to reduce investment in rental housing. This includes taxing the supply of new homes to rent through a three per cent stamp duty levy. Moreover, the decision to restrict mortgage interest relief to the basic rate of income tax means that, unlike any other business, landlords are taxed on turnover rather than profits. 

The NRLA is warning that these tax measures are fuelling a supply crisis in the sector. According to new data from research consultancy BVA/BDRC for the NRLA, 62% of private landlords in England and Wales report heightened tenant demand in Q1 2022 – a record high.  

Over the same quarter, more landlords (11%) sold property than purchased new property (8%), making the supply crisis even more acute. 

Given that renting privately is the first housing tenure most young people enter when they leave home or university, demand will only increase. This is because the 15-24 cohort in the population is forecast to grow between now and 2030 by 866,000 (11%).

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