The immediate past president of ARLA Propertymark says the government has spooked the private rental sector with its programme of reform and the threat of higher Capital Gains Tax.

Greg Tsuman – director of lettings at the Martyn Gerrard agency and the most recent ARLA president – says: “It remains crucial for the government to do more to keep landlords in the market, and the most impactful thing it could do is to reverse Section 24 of the Finance Act, which prevents landlords from claiming mortgage relief on their rental properties. This treatment of landlords is totally different to any other business, as it allows the government to tax landlords even on a loss-making tenancy. 

“The effects of this are most acutely felt in London, where the majority of landlords have financing secured against their property … all this does is force landlords to sell, creating higher competition for renters and ultimately driving rents up to the extent that the government has to intervene with legislation like the Renters Rights Bill. The imbalance between support for landlords and tenants is essentially forcing tenants to create bidding wars between themselves.

“Landlords will have also been spooked by the Bill’s lack of clarity over how they will be able to evict anti-social tenants, those that are repeatedly late on paying rent, and others that are abusing the system, adding the risk that landlords may be stuck with tenants who are not paying rent and incur losses which will ultimately be passed to future tenants through rent increases.”

Tsuman was speaking after analysing the latest data from Zoopla, which says annual rental growth for new lets currently stands at 5.4%, half the rate compared to a year ago but still higher than the growth in average earnings (5.1%). Average rents stand at £1,245 per month in July 2024, £63 per month higher than a year ago.

A lack of supply remains a major challenge for renters due to low levels of new investment by private landlords. The number of homes for rent is up by almost a fifth on last year off a low base, but the number of homes for rent is 24% below the pre-pandemic average. Whilst rental demand has declined over the last year as one-off pandemic factors fade, mortgage rates fall and tighter visa rules reduce migration for study and work, there are still 21 people competing for every rental property, more than double pre-pandemic levels. This explains the continued impetus for rental inflation.

The portal says a lack of new investment in private rented homes has created a scarcity of homes for rent, compounding the strong growth in rents over the last three years (+30%). 

Tsuman continues: “I suspect that the rise from 17 would-be tenants for every rental property on the market last month up to 21 today is in part a reaction to the rumoured changes to the Capital Gains Tax as well as the Renters’ Rights Bill, which we’ve now seen for the first time. Whilst the proposals in the Bill itself pose little threat to landlords, it has created a sense of uncertainty, and the reality is that landlords are now looking sell up and get out of the market.

“Overall, I would caution that unless the government introduces policies to balance support for renters with sufficient support for landlords, we will soon see the ratio of renters to rental properties rebound up to the historically high levels we saw in November 2022, when there were 45 hopeful renters for every property available. It is telling that in 2017, before the introduction of Section 24 of the Finance Act, this ratio was as low as 3 renters for every property, but that it spiked sharply after Section 24 was introduced. 

“We simply must avoid sleepwalking into a catastrophe where renting becomes a privilege of a few whilst others look at similar waiting lists to those seeking social housing, if not sleeping rough or in temporary housing.”