Navigating a Shifting Rental Market: The Impact of Capital Gains Tax, Government Reforms, and Landlord Sentiment

Over the past year, there has been growing concern among landlords regarding changes in taxation and government reforms that could alter the dynamics of the private rental market. The proposed increase in capital gains tax has sparked fears, leading to some landlords reconsidering their position within the market. In particular, it’s the smaller, often accidental landlords, who are selling their properties. These individuals typically have fewer properties, and a more modest portfolio compared to established portfolio landlords who tend to have the financial cushion to weather potential tax hikes.

The looming changes in capital gains tax could have a notable effect on the rental market. In the short term, yes, we expect to see some landlords exiting, which could result in a temporary reduction of rental stock. However, this market correction will likely be followed by a levelling out. As landlords sell off properties, the increased supply is expected to bring property prices down, which may in turn attract new investors drawn by more favourable yields and lower purchase prices. Ultimately, while the market could see some turbulence initially, it is likely to stabilise as new landlords step in, taking advantage of better returns.

Interestingly, larger portfolio landlords, who hold more diverse and debt-light portfolios, are largely holding their ground. These landlords seem to be adopting a wait-and-see approach, choosing to ride out any potential volatility until the government’s tax plans are fully confirmed. For now, their positions appear to be secure, and they are more likely to make long-term decisions once they have more clarity on how the tax reforms will pan out.

Alongside tax concerns, the Government’s Renters' Reform Bill has also raised alarm bells for some landlords. While a segment of the landlord community is concerned about the long-term effects of the legislation, much of the anxiety appears to be driven by misinformation and poor media reporting. This has led to misconceptions around the bill's impact, particularly around tenant rights. As a result, our organisation is committed to producing content that clears up these misunderstandings and highlights the positives within the reform.

Despite the media frenzy, we haven’t seen many landlords rushing to amend their rental agreements just yet. However, there has been an uptick in landlords requesting shorter contracts. This trend seems to stem from a desire for flexibility in an uncertain market. With tenants becoming more engaged in discussions around reforms, landlords are fielding more questions, particularly about rights like pet ownership. It’s clear the reforms have created a dialogue between tenants and landlords that is evolving alongside the legislation.

On the broader question of landlords' concerns about future government intervention, there is an undeniable sense of unease. The rental market feels fraught with uncertainty, and the sentiment among many landlords is that they are being punished for the bad practices of a few. This perception is particularly strong among those who are passionate about providing quality housing. Many landlords see themselves as part of the solution to the housing shortage and feel frustrated by policies that seem to shift the balance of power too far in favour of tenants. This sentiment is likely contributing to the growing nervousness about what further changes might be coming down the line.

If more landlords choose to leave the market, we could see a reduction in private rental housing stock in the near term. The short-term effect of such an exodus would likely push up rental prices and reduce the availability of rental properties, in a market already experiencing a shortage of stock. For me, it’s simple supply and demand. The pressures landlords face, both from tax changes and regulatory reform, may lead them to pass on these costs to tenants, a trend we have already observed following the tenant fee ban and recent increases in interest rates. Rental prices have been steadily rising, with average rents increasing by 6% annually for renewed tenancies, and upwards of 10% for new ones. This trend is likely to continue as landlords adjust to the changing landscape.