New analysis from the Joseph Rowntree Foundation (JRF) and the Autonomy Institute suggests the landlord tax system could be redesigned in a way that improves affordability for renters without materially undermining the private rented sector.

The research examines returns across the English rental market and finds that a majority of landlords have outperformed comparable benchmark investments in recent years, even after tax. According to the analysis, 74% of landlords achieved higher returns in 2018, rising to 99% in 2021, before falling to 63% in 2024.

The report models a package of policy changes including rent regulation, tax adjustments and changes to mortgage interest relief. It suggests that limiting in-tenancy rent increases to CPI, alongside caps on between-tenancy increases at CPI+2%, could reduce average rents by around £1,200 per year within six years.

It also argues that reinstating full mortgage interest relief would help offset pressures on landlords most affected by higher borrowing costs and potential rent controls.

Separately, the analysis proposes applying National Insurance contributions to rental income, which it says would capture higher returns at the top end of the market and address what it describes as uneven effective tax treatment across landlords.

The modelling suggests that, under the proposed package, fewer landlords would be making losses by 2030 than under the current tax regime, even with rent controls in place, which it argues could improve sector stability.

The report also states that rent regulation could reduce housing benefit expenditure and support uprating of Local Housing Allowance to the 30th percentile of local rents, while generating net fiscal savings of more than £600 million by 2030.

The JRF states the following:

The rent squeeze

Rents have been persistently high as a proportion of renters’ incomes for the past 15-20 years. [2] Recent rent inflation, around 8% since the last general election in July 2024, has only added to the pressure renters were already under. This is leaving renters with no financial buffer at the end of each month and little ability to save for the future.

A rent control would help ease the pressure on renters, particularly as the benefits of building more homes will take time to be felt. JRF’s conclusions that a rent control can be carefully designed and introduced without harmful unintended consequences is underpinned by first-of-its-kind research by the Autonomy Institute, which found that while renters are being squeezed, landlords in England are recording significant overall profits.

Landlord investments

The research analysed how well English landlords’ investments have performed since 2018, assessing landlords’ rental income and capital gains, as well as estimating landlords’ operating, financing and tax costs. [3] Landlords’ profits on their investments were then compared to benchmark profits from similar investments. [4]

In each of the three years studied as part of the research, the majority of English landlords recorded higher profits compared to similar benchmark investments, even after tax (74% in 2018, 99% in 2021 and 63% in 2024).

While most landlords are experiencing exceptional profits, some landlords are faring better than others due to how they are taxed. Currently the tax system exacerbates the risk of mortgaged landlords making a loss, due to Section 24 restricting tax relief on mortgage interest. [5] Landlords who own outright without a mortgage, who the Autonomy Institute’s research shows are making the highest returns, are taxed lightly on their profits in comparison.

The tax system

This could and should be changed to end the imbalances within our tax system while also smoothing the impact of a rent control for the subset of highly leveraged mortgaged landlords who would be most at risk of making a loss.

JRF have modelled the impact of reversing Section 24 and applying National Insurance Contributions (NICs) to rental income in combination with a rent control that caps in-tenancy rent increases to CPI and between tenancy increases to CPI + 2%. [6]

JRF found that this would have a timely and significant impact on renters and could save renting households almost £1,200 per year on average within six years. [7]

This combination would also protect highly leveraged landlords from some of the impact of higher mortgage rates over the coming years. JRF found that introducing the proposed tax changes would lead to fewer landlords making a loss by 2030 even with a rent control than if the current tax system remained. Introducing a rent control in this way would therefore not be expected to jeopardise the supply of existing rental homes. The cost of offering a relief to mortgaged landlords would be entirely paid for by applying NICs to rental income.

Effects on housing benefit

A rent control would also have the added benefit of making the Housing Benefit bill more sustainable. JRF have analysed the savings generated by a rent control – one that caps rent increases in-tenancy at CPI and caps between tenancy increases to CPI + 2% – over the next six years.

The research shows the savings would be sufficient to fund the annual uprating of Local Housing Allowance back to the 30th percentile of local rents, while also delivering more than £600 million in net savings to the Housing Benefit bill by 2030. This would give renters on low incomes greater stability while also freeing up money that could be put towards increasing the supply of new social homes.

In a report later this year JRF will outline how a rent control could work in practice.

Rosie Worsdale, senior policy adviser at JRF, said: “Renters have felt the squeeze of unaffordable rents that take up too high a proportion of their incomes for far too long. Trapped in a cycle of high rents, financial strain and no ability to save – renters are just one redundancy or illness away from a crisis. They can’t wait for the many years it will take to feel the impact of the new homes currently being built.

“By contrast, most landlords have experienced inordinate profits since 2018. However, our tax system means that the landlords profiting the most pay the least tax on their profits. What’s needed is a solution that eases the rent squeeze for renters without unintended consequences that could jeopardise the private rented sector.

“Targeted tax reforms would capture the extraordinary profits landlords have experienced and tax all income from rents more fairly, while also protecting the most exposed landlords. Together this would create the conditions where rents could be capped, easing the squeeze on renters, without detrimental consequences.”

Will Stronge, chief executive at the Autonomy Institute, commented: “The private rental sector has been one of the best-performing investments in the English economy for the past decade – combining the security of a tangible asset with returns that have consistently outpaced comparable alternatives. Yet while landlords have ridden high, renters have faced costs that now consume 44% of the average wage. This report should give pause to anyone who claims that modest reforms will drive landlords out of the market. The numbers tell a very different story.”