In its latest report, Rebalancing the Housing Market Through Tax Reform, the think tank argues that targeted fiscal measures were effective in discouraging buy-to-let investment. By reducing demand from landlords, the reforms helped ease competition for homes and strengthened the position of aspiring homeowners entering the market for the first time.
The report contends that recent tax reforms have significantly narrowed the gap between landlords and aspiring homeowners, enabling over a million households to step onto the property ladder. Despite initial fears that such measures might lead to rent hikes or worsen affordability for tenants, these negative outcomes have not materialised.
Since 2016, a series of targeted policy changes have aimed to bolster the prospects of first-time buyers. These reforms acknowledge the longstanding imbalance, where landlords—armed with easier access to finance and capital—have consistently outbid residential purchasers, driving up property prices and limiting homeownership opportunities.
The report wrote “Unsurprisingly, this approach has proved unpopular with landlords and their lobbyists, who have argued that such policies have led to an ‘exodus’ of landlords, causing pressure on renters as they compete for fewer homes
“This rhetoric has worsened as interest rates surged following the mini-budget of September 2022. Higher borrowing costs for landlords weakened the buy-to-let model and sparked much coverage of, and concern about, the financial position of landlords and their willingness to remain in the tenure.
“Despite these simple – and often compelling – narratives, the actual impact of fiscal reform on home purchases into the private rented sector (PRS) is less clear and has been subjected to limited analysis. Nor has analysis meaningfully considered what happens to renters when rates of home purchases into, or the overall stock of homes in, the PRS contracts.”
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Tax reforms have played a pivotal role in curbing demand from private landlords, leading to a marked decline in buy-to-let acquisitions and effectively halting the expansion of the private rented sector.
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This shift has opened the door for residential buyers—especially first-time buyers—who were previously crowded out of the market. According to recent estimates, there are now roughly one million more owner-occupied households than there would have been had pre-2016 trends continued, many of whom would otherwise be renting.
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Importantly, this rebalancing has occurred without significant harm to renters who remain in the private sector. Where pressures do exist, they are manageable and should be addressed through targeted policy and regulatory measures to ensure stability and fairness across the housing system.
Joseph Rowntree Foundation concluded: “These tax changes, in combination with wider support for FTBs, have had a significant, positive impact on FTBs, and affirms that tax strategies designed to rebalance who has power in the housing market, and with it who owns homes, are viable strategies to pursue. These are important lessons for the government to learn if it is to meet its goal of supporting more households into homeownership.”
However the PRS sector does not agree with the report’s findings and a spokesperson for a private landlord association, said: “Both the former head of the Institute for Fiscal Studies and the current Housing Minister agree that tax policy affects rent levels. It is not clear how higher taxes, leading to higher rents, makes it easier for tenants to save for a home of their own.
“Despite some modest improvements in supply, there are still an average of 11 renters chasing every home to rent according to Rightmove. Further tax hikes will serve only to dampen investment in the sector, undermine tenant choice and push rents even higher.
“For millions of people, the private rented sector is vital for ensuring they have a place to call home. Rather than more piecemeal tax grabs, the Government should use the tax system more strategically.
“We need tax policies that encourage long-term investment in new decent quality rental housing, supports investment in energy efficiency improvements, and incentivises responsible private landlords to bring long-term empty homes back into use.
“That’s how we expand supply, drive up standards, and ease pressure on renters.”