A report on ‘The Supply of Rental Housing’ published by the Communities and Local Government Committee this week says that 'perverse' taxes have damaged the Government's efforts to deliver housing.

A statement from The British Property Federation (BPF) claims the report criticises disincentives that prevent improvements to properties and stops large investors from building new homes.

The BPF points to the finding that says: “Taxing an activity which so badly needs to be carried out appears perverse. The tax system should not impede or deter any housing provider from taking the steps necessary to improve the supply of rented housing.”

The supply of social housing is also damaged by the complex system of corporation tax and with many social homes also being delivered through private development taxes (known as s106s), the downturn in house building will hit the most vulnerable, pushing more into private rental.

The report blames buy to let for putting ‘pressure on housing markets, particularly for first time buyers’ adding that ‘in London around two thirds of new build properties in 2005 were bought by investors rather than owner-occupiers’. However, says the BPF, it fails to recognise whether such properties would have been affordable for first timers.

In addressing solutions, the report says: “We recommend that the Government investigate the potential for improvements to the regulatory process to encourage further investment from large institutions to improve supply. One of the main issues raised by potential investors is the effect of aggregating the stamp duty of all properties, rather than applying the tax separately to properties, which acts as a disincentive for larger investors. Another fiscal disincentive is the application of VAT to repairs and maintenance.

“Given that one of the main problems with the private rented sector is the relatively poor standard of repair (the sector has the largest proportion of non-decent homes), taxing an activity which so badly needs to be carried out appears perverse. VAT is also an obstacle for community ownership and management organisations.”

In its statement last week, the government said it would ‘publish a housing reform green paper setting out proposals to provide housing services and options which help and encourage people towards greater economic independence and social mobility’.

The private sector, led by the BPF, believes councils already have the power to encourage 'build-to-let' and develop a branded-rental sector by reducing affordable housing levies to encourage large institutions to invest in housing, as discussed in this report.

Ian Fletcher, the British Property Federation's director of residential policy, said: “The fact is that the public needs assistance now, and any legislation will take years to come through. Local councils already have the powers to treat developments built for let differently, and to reduce the level of S106s they have to pay.

“Councils can already recognise the fact that build-to-let is a form of affordable housing, and we hope that more of them can make use of this great opportunity to increase the supply of quality, professionally managed housing.”

Rupert Dickinson, chief executive of Grainger Plc, a UK listed residential landlord, and chairman of the BPF's residential committee, said: “Ultimately, promoting a professional rented sector building to let at the present time makes absolute sense. It provides affordable accommodation, adds to supply, does not rely on the debt markets as much as highly-geared private investors and is inclusive in terms of the people who can access it.

“The build-to-let model does not lead to irresponsible lending and requires very little by way of public financing – an important consideration in a week when the government has revised its budget. There not many other propositions that ticks so many of these boxes.”

Mark Allan, chief executive for the UNITE Group plc, the UK's largest student accommodation provider said: “We house over 38,000 students nationally and the key to our success has been a willingness on the part of local authorities to work with us and encourage the kind of quality, long-term rental accommodation we develop.

“UNITE Group's model – which is focused on treating our tenants as customers – is the epitome of how an institutionally-backed professional rented sector could be. Local planners could encourage a professional rented sector to house anyone looking for a home, be they a young professional or family.

“Councils already have the powers to treat build-to-let as they treat accommodation developed for students. Given the continued rise in demand for rental, along with a long term increase in immigration, higher education numbers and the demand for labour mobility, it is vital that we all recognise how professional, flexible and quality rental accommodation is meeting market need.”

During its conclusion the Supply of Rented Housing Report says: In the private rented sector, the need is for greater institutional investment. Individual investors purchasing properties for buy to let have given a welcome boost to supply.

“But small buy to let investors often make poor landlords and in any case the ‘credit crunch’ and declining confidence in the housing market may mean that the trend has run its course.

“Further significant increases in supply in the private rented sector will require large institutional investors to be attracted back to the sector.