The Residential Landlords Association (RLA) is calling for the Chancellor to use his first Budget to stop the decline in the supply of rental housing.
The firm cited the 3% stamp duty levy on extra housing added in 2016 as slowing down investment in new rented property, combined with landlord confidence being “extremely low”.
Additionally landlords are being incentivised by the tax system to switch their properties to short-term lets, added the RLA.
ARLA Propertymark has said that almost 500,000 properties could be left unavailable for tenants in need of long-term homes to rent.
The RLA and the National Landlords Association (NLA) are proposing that the stamp duty levy is dropped where landlords add to the net supply of housing through developing new properties.
Furthermore, the RLA and NLA believe this will bring empty properties back into use, or covert large properties into smaller, more affordable properties.
The two associations want the introduction of a Capital Gains Tax exemption where landlords sell a property to a sitting tenant.
Additionally, they are calling for tax relief where landlords invest in measures to improve the energy efficiency of a rented property.
David Smith, policy director for the RLA, said: “The tax system for rented housing is failing. It encourages the provision of holiday homes over long-term properties to rent, it deters investment in new housing and provides no support to those wanting to make energy efficiency improvements.
“For the sake of those living in rented housing or who are looking for accommodation, ministers need to use the Budget to urgently change course to ensure that their tax policies are positively aligned with their wider housing objectives to encourage good landlords to provide long-term affordable housing.”
Chris Norris, director of policy and practice at the NLA, added: “The tax system with which landlords must contend is no-longer fit for purpose. HM Treasury has constructed a series of barriers to investment, which make running an efficient and successful lettings business borderline impossible.
“As he prepares his first Budget, we hope that the Chancellor will take the opportunity to use taxation to encourage investment in new and existing homes alike.
“Sunak must recognise that housing costs can only be reduced by making it easier, not harder, to provide good quality rented homes.
“The emphasis must be on finding solutions and encouraging investment across tenures amongst a diverse range of providers.”