Tax changes in the private rented sector (PRS) have likely contributed to the loss of £1.5bn in Treasury revenue, according to new independent analysis commissioned by the National Residential Landlords Association (NRLA).
The Capital Economics research found that restrictions in mortgage interest relief have contributed to there being approximately 1.2 million fewer properties for rent in the UK.
It comes as renters across the country continue to face a shortage of homes.
According to Zoopla, demand for rented housing is up 46% while supply is down 38%.
This supply crisis follows the decision in 2015 by then-chancellor George Osborne to restrict mortgage interest relief in the sector to the basic rate of income tax.
The analysis shows that the stock of private rented housing in the UK increased by a compound annual growth rate of 3.7% between 2010 and 2016.
But between 2017 and 2021, the period in which the mortgage interest changes were implemented, it is estimated that it grew by just 0.4% a year.
If stock had continued to grow at the rate of 3.7%, there would have been a total of 6.8 million properties in the PRS in 2021 — around 1.2 million more properties than were actually available.
The annual income and corporation tax revenue from these extra rented properties could have boosted Treasury revenue by £1.5bn.
The NRLA is calling on the government to undertake a full review of the impact of recent tax rises on the market.
Ben Beadle, chief executive at the NRLA, said: “At a time when renters are struggling to find a place to live, this 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 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.”
