How taxing private landlords helped 1.1 million renters become first-time buyers

More than one million households have been able to become first-time buyers thanks to taxes on private landlords.

That’s according to analysis from the Joseph Rowntree Foundation (JRF). The think tank said restricting finance cost relief for individual landlords and introducing a higher rate of stamp duty for additional properties back in 2016, among other tax changes, has helped shift the balance in the housing market.

Rising taxes on private landlords has been one of the reasons, alongside the introduction of the Renters’ Rights Bill, why there have been warnings of an exodus in recent times.

But stalling growth in the private rented sector has opened the door for homeownership, JRF’s Darren Baxter said.

“The previous government rightly recognised that the tax system had swung too far in favour of landlords over and above people looking to buy their first home,” said Baxter, principal policy adviser at JRF.

“Tax reforms introduced to address this imbalance have allowed more first-time buyers, including young people, to own their own home. This has been achieved without the dire consequences for renters predicted by those opposed to taxes on landlords.”

The private rented sector in England has doubled in size since the turn of the millennium but in recent years the sector has remained at a relatively stagnant size.

JRF argued that changes to taxes introduced in 2016 have played a significant role in switching homes from private renting to owner-occupied.

Finance cost relief for individual landlords was announced at the 2015 budget. This meant landlords were no longer be able to deduct all of their finance costs from their property income to arrive at their property profits

A higher rate of stamp duty land tax for additional properties was set at 3% at the 2015 spending review before being increased to 5% at last year’s autumn budget.

The 2024 financial statement also saw abolition of the furnished holiday lettings tax regime and abolition of the multiple dwellings relief from stamp duty land tax as well as reducing the rate of capital gains tax on the disposal of properties.

The annual real growth in new buy-to-let lending fell from an annual growth of 25% between 2009-2016 to just 1% from 2016-2022.  

As a result, 1.1 million more households in the UK own their own homes than there would have been if the private rented sector had increased at the same rate as prior to 2016, the think tank found. 

Both the Conservatives and Labour have targeted boosted homeownership in recent election campaigns.

There has since been a shift towards homeownership. JRF found share of all new gross mortgage advances that were to first-time buyers climbed from 29% in 2015 to around 41% in 2024.  

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Meanwhile, growth in the private rented sector fell substantially from an average annual rise of around 200,000 additional homes a year between 2003 to 2015 to just 20,000 additional homes a year on average between 2016 to 2024.

That coincided with a seven percentage point drop in the share of 20-34 year olds renting between 2015-16 to 2023-24 fell while the share of the same age group owning a home grew by four percentage points over the same period.  

JRF also found that tax changes have impacted landlords’ ability to compete with first-time buyers, even when taking into account interest rates, rental rises and expectations for house price growth.

Despite predictions back in 2016 that tax reforms would spark rent rises – and private rents reaching record-highs in recent years – JRF found no evidence of real terms increases in private rents because of tax changes.

The think tank pointed to demand for private rentals falling when levels of homeownership increased and explained rises on the overall shortage of the supply of homes, rather than homes in the private rented sector itself. 

Baxter said that further reforms of the tax system should be used to address the disparity between tax paid on wages compared to investment income, including rents.

He also encouraged the government to close loopholes that allow landlords to avoid paying higher rates of tax.

Reforms should include applying national insurance contributions to all investment income, including rents from property, and closing a loophole that allows landlords who operate as a limited company to deduct mortgage interest from company income.

Reforming the annual tax on enveloped dwellings so it captures more companies who own properties, further limiting incentives to incorporate would also boost homeownership, JRF’s Baxter argued.

“This government can and should build on the success of these reforms to make homeownership a reality for more people,” he said.

“To further level the playing field the government should address the current disparity between tax paid on wages compared to tax paid on investment income, including rents, and close loopholes that allow landlords to avoid paying higher rates of tax.” 

Dan Wilson Craw, deputy chief executive at Generation Rent, said: “Our homes are the foundations of our lives. Renting is expensive and uncertain, so it’s no surprise that most renters want to buy a home. For many years tax advantages for landlords were disadvantages for anyone who wants to buy a home to live in. But, by reducing investors’ appetite to expand their portfolios, and thus allowing a million more households to buy, tax changes have been a huge success.”

Wilson Craw added that the government could go further at the upcoming autumn budget, calling for the Treasury to crack down on “increasing numbers of rental homes owned by limited companies”.

“People who work shouldn’t be paying a higher rate of tax on their income than people who get an income just for owning a property,” he added.

“National insurance on rental income could push more individual landlords into company arrangements, limiting the revenue the government could raise from the policy, so the chancellor should consider an equivalent levy on rental profits that applies to all types of landlord.”

But JRF’s findings have faced opposition from private landlords.

Ben Beadle, chief executive of the National Residential Landlords Association, said: “The idea that higher taxes are good for renters is simply not correct.

“Both the former head of the Institute for Fiscal Studies [Paul Johnson] 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.

“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.”

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