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Supply shortage could push rents up 15%

RICS Residential Market Survey, published today, reveals a continued reduction of new rental property. New lettings instructions have now fallen for two years.

According to RICS, this is the result of landlord tax changes encouraging smaller buy to let landlords to leave the sector. The changes include a new 3% Additional Properties Stamp Duty surcharge introduced in April 2016 and the tapering back of Finance Cost Relief, which started in April last year.

While the supply of rental stock is increasingly constrained, tenant demand remains resilient. The consequence is that expectations for rental growth appear to be strengthening. RICS predict that rents could rise more than 15% by 2023.

RICS Policy Officer, Abdul Choudhury, said: “Our survey suggests that recent Government policy and legislation changes have impeded the growth of the Private Rented Sector (PRS), which is a vital part of a functioning homes market. 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 impacted supply.

“While the current focus is rightly on using regulation to improve the experience for tenants, Government must urgently look again at the PRS 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 PRS, it must provide a suitable alternative. If they wish to improve PRS, as we have suggested by professionalising through regulation and the PRS code, there is justification to reconsider the approach taken to tax.”

New buy to let landlords can purchase investment properties through a limited company to continue to benefit from Finance Cost Relief while many developers are now offering Stamp Duty contributions to ease the burden on investor purchasers. However, this will not help landlords with existing portfolios as they will have to pay Capital Gains Tax and Stamp Duty all over again to transfer properties into a limited company.

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