The former president of an industry association has expressed concerns that the government’s reform agenda and the potential increase in Capital Gains Tax have unsettled the private rental sector.

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Greg Tsuman the director of lettings of a North London estate and lettings agency 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, after reviewing the latest data from Zoopla, highlighted that annual rental growth for new lets is currently at 5.4%. This is half the rate compared to a year ago but still exceeds the growth in average earnings, which stands at 5.1%. As of July 2024, the average rent is £1,245 per month, an increase of £63 from the previous year.

A significant challenge for renters is the lack of supply, driven by low levels of new investment from private landlords. Although the number of homes for rent has increased by nearly 20% from last year, it remains 24% below the pre-pandemic average. Despite a decline in rental demand over the past year due to fading pandemic factors, falling mortgage rates, and stricter visa rules reducing migration for study and work, there are still 21 people competing for each rental property, more than double the pre-pandemic levels. This competition continues to drive rental inflation.

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.