Tax changes in the private rented sector have contributed to the loss of £1.5 billion in Treasury revenue, according to a new independent analysis commissioned by the National Residential Landlords Association.
The analysis, conducted by Capital Economics, found that restrictions in mortgage interest relief have contributed to there being 1.2m fewer properties in the private rented sector in the UK than there otherwise could have been.
The research comes as renters across the country continue to face a shortage of homes to rent. According to Zoopla, compared to the five-year average, demand for rented housing is up 46 per cent whilst supply is down 38 per cent.
The supply crisis faced by renters follows the decision in 2015 by then-Chancellor George Osborne to restrict Mortgage Interest Relief in the private rented sector to the basic rate of income tax.
Capital Economics also finds that between 2010 and 2016 the stock of private rented housing increased by a rate of 3.7 per cent a year. However, between 2017 and 2021, the period in which the mortgage interest changes were implemented, it grew by just 0.4 per cent a year.
The analysis reveals how, if private rented housing stock had continued to grow at a rate of 3.7 per cent, there would have been a total of 6.8m properties in the private rented sector in 2021 - around 1.2m more properties than were actually available to rent.
According to Capital Economics’ research, the annual income and corporation tax revenue from these extra rented properties would have boosted Treasury revenue by £1.5 billion.
The NRLA is calling on the government to undertake a full review of the impact of recent tax rises on the sector.
It argues that this must assess the impact of the Mortgage Interest Relief changes on the market. Ministers must also consider the rationale for the change, given the Institute for Fiscal Studies has previously argued it is wrong to suggest landlords have been taxed more favourably than homeowners.
NRLA chief executive Ben Beadle says: “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.”
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Er yeah Ben but we all told you this would happen five years ago and your standard line to everything from the gov was “we welcome proposal’s”
Haha I’ve heard him say that several times. Can’t think of a worse person to lead.
Well its not the first time the Govt has shot itself in the foot and no doubt wont be the last. Good to see it spelled out so clearly and the view of the Institute of Fiscal Studies.
Finally a good combative well reasoned article from the NRLA.
We must all hope that this marks an end to the tacit, weak welcoming acceptance of sector corrosive Gov policy by what has long been a cowering NRLA. This is a time to stand up and fight or loose the PRS.
Perhaps the NRLA is complaining now because fewer Landlords means fewer subscriptions for them?
I've never joined the NRLA Robert in all the years I've been a landlord. I've never heard good things about them. The opinion seems to be that they're spineless and dont really do a lot for their members, but I could be wrong.
Shane
My son is in the Scottish Landlords Association and I piggy back on his membership and find it very useful. I really should pay my own membership fee but can't resist the urge to game the system. I also piggy back on his Netflix and Amazon Prime memberships.
( Hanging head in shame while counting the savings).
Have to admit that they we're simply brilliant when we needed their help, cannot fault them, mmm... although we stopped the membership the next year, oops!
If the Mortgage interest relief was scrapped would it increase the house prices? As well though?
It's possible that house prices would steady and even go up slightly. However, rents would come down with competition and tenants would have less stress and somewhere to live.
Section 24 has created imbalance.
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