Private rented sector tax changes have cost the Treasury £1.5bn in lost revenue and helped propel the lack of homes for tenants, according to a report by the National Residential Landlords Association.
Cuts in UK mortgage interest tax relief mean there are 1.2 million fewer properties in the sector than there otherwise could have been, says the study carried out by research group Capital Economics.
The landlord’s body says Chancellor Jeremy Hunt must review “this misguided tax hike” at a time when tenants face an acute shortage of homes for rent
The report says this decision dates back to 2015 when then-Chancellor George Osborne moved to restrict mortgage interest relief of up to 45% for the wealthiest landlords in the private rented sector, to the 20% basic rate of income tax over a four-year period, which ended in 2021.
Between 2010 and 2016 the stock of private rented housing grew by 3.7% a year, the report finds.
But between 2017 and 2021, it lifted by just 0.4% a year.
The survey concludes that had private rented housing continued to grow at a rate of 3.7%, there would have been a total of 6.8 million properties in the sector in 2021 — around 1.2 million more properties higher than the current rented stock.
The annual income and corporation tax revenue from these extra rented properties would have contributed £1.5bn to Treasury coffers.
The landlord’s body says the crisis in the sector is highlighted by Zoopla’s December Rental Market Report, which says that compared to the five-year average, demand for rented housing is up 46% while supply is down 38%.
The association calls on the government to look again at the impact of recent tax rises on the sector, including the impact of the mortgage interest tax relief changes on the market.
The body says that ministers must also consider the rationale for the change, given that thinktank the Institute for Fiscal Studies “has previously argued it is wrong to suggest landlords have been taxed more favourably than homeowners”.
National Residential Landlords Association chief executive Ben Beadle adds: “At a time when renters are struggling to find a place to live, today’s research shows that the government has shot itself in the foot.
“The decision to restrict mortgage interest relief has not only stifled investment in the very homes tenants need, it has also come at a considerable cost to the Treasury in lost revenue.
“When you consider that the government’s rationale for the changes has been refuted by the Institute for Fiscal Studies, it is clear that the Chancellor needs to review this misguided tax hike.”