Government policy has broken the private rented sector as the latest data shows that the number of homes in the market continues to shrink despite a surge in demand, according to the National Residential Landlords Association (NRLA).

Since 2015, the government has introduced a range of measures designed to discourage investment in private rented housing. This has included measures to restrict mortgage interest relief and imposing a three per cent stamp duty levy on the purchase of homes to rent out. Reports suggest the chancellor may increase capital gains tax in his Autumn Statement later today.

Earlier this year, the Levelling Up, Housing and Communities Secretary, Michael Gove, argued that shrinking the private rented sector would help more people become homeowners.

Official figures show that the number of households in the private rented sector has fallen by over a quarter of a million over the past five years. However, demand from prospective tenants continues to soar, with students among those scrabbling to access a dwindling number of properties.

According to Zoopla, so far this year the demand for private rented housing in the UK is up 142% compared with the five-year average, whilst the supply of such homes has dropped by 46%. A similar trend has been reported by Rightmove who report that, in Q3 2022, tenant demand increased by 20% compared with Q3 2021.

Data for the NRLA has found that in the third quarter of the year 65% of landlords reported that the demand for private rented housing had gone up. This was up almost 10 points compared with the previous year.

Local authorities have also raised concerns that the flight of housing out of the private rented sector puts extra pressure on already lengthy social housing waiting lists.

The trend of ever-increasing demand takes place despite the number of owner-occupied households in England having increased by over one million in the past five years.

With the demand for rental housing set to grow further as mortgages become more expensive, the NRLA is warning that further tax hikes will serve only to exacerbate the crisis facing many tenants trying to find housing.

Ben Beadle, chief executive of the NRLA, said: “The government’s strategy for the private rented sector lies in tatters. The fact that the supply of homes to rent is falling despite an increase in demand is a damning indictment of tax decisions which serve only to increase rents and make home ownership more difficult to achieve.

“Further tax hikes on the sector risk making an already bad situation worse. Ministers need to recognise that a healthy and vibrant private rental market needs to sit alongside, rather than be in competition with, efforts to support homeownership.”