Rental prices could rise by 15% by 2023 as the supply of new rental properties slows down, according to a recent survey by the Royal Institution of Chartered Surveyors (RICS).
RICS explained that small scale landlords are pulling out of the market, due to tax changes brought in last year which have made buy-to-let (B2L) investments less profitable.
The institution said it was time that government reviewed the methods used to regulate the private rented sector, as its members have noted that the supply of new rental property has fallen consistently for two years.
However, while the volume of properties available to rent is falling, the number of people looking to rent is steadily increasing, although the numbers are levelling off.
RICS chief economist Simon Rubinsohn said: “The risk... is that a reduced pipeline of supply will gradually feed through into higher rents.”
A spokesperson for the Treasury highlighted that the reason behind the tax changes was to make more houses available to homebuyers.
“We want to realise the dream of home ownership for a new generation, and that's why we introduced a cut to stamp duty for first time buyers, and have built 1.1m additional homes since 2010,” they added.
Changes to the B2L regime introduced in last year mean that mortgage tax relief for landlords will be restricted to the basic rate of income tax by 2020. RICS stated that the full impact of the changes and increases in stamp duty have yet to be felt.
Commenting on the findings, RICS policy manager Abdul Choudhury said: “Withdrawing tax breaks that small landlords relied on, placing an extra 3% on second home stamp duty, and failing to stimulate the corporate build-to-rent market, has understandably had an impact on supply.
“Government must urgently look again at the private rented sector as a whole, including ways to encourage good landlords.
“Ultimately, government must consider the impact of its policies, and if the wish is to move away from the private rented sector, it must provide a suitable alternative.”
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