Warnings by landlords that taxes on buy-to-let would cripple the property market, driving down supply and pushing up rents, have turned out to be entirely hollow, according to research by campaign group Generation Rent.

It found that since the “bombshell” introduction of taxes on buy-to-let landlords in George Osborne’s 2015 budget, rents have fallen in real terms.

“Warnings of crippling rent rises have been confounded. In fact, real rents (adjusted for inflation) have fallen by 2.8% in the same period. There is therefore no evidence that a reduction in the supply of rented homes has pushed up rents,” said Dan Wilson Craw of Generation Rent.

Weaker buy-to-let market gives hope to first-time buyers Read more

Taxes on buy to let have had the desired effect of raising revenue for the public purse, while tilting the balance in the property market away from landlords and towards first-time buyers, said Craw.

The number of first-time buyers a year has grown by 21% since Osborne’s first announcement on landlord taxation in July 2015, to 366,000 in the year to June 2018.

Meanwhile, the private rented sector has shrunk by 111,000 units since April 2016, when the first of the buy-to-let tax changes, a 3% surcharge on stamp duty, came into effect. There is also an ongoing phased removal of higher-rate tax relief on mortgage interest payments, which will be fully implemented by 2021.

At the time of the tax announcements, landlords were adamant that rents would have to rise and that tenants would suffer. In 2015, the Association of Residential Letting Agents said: “Landlords will seek to recoup their costs by hiking up rents. As a result, tenants will have to save for longer to be able to afford a deposit for a house, as more of their income will be eaten up by rent.”

But the research by Generation Rent has found that the forecasts were groundless. “Despite scaremongering by the property industry, renters have little to fear from a housing market that is no longer a playground for speculators. If homes leave the private rented sector then so do the private renters who are now able to become homeowners. The balance of supply and demand is unchanged and so are rents,” said Craw.

Chris Norris, director of policy and practice at the National Landlords Association, said: “The English Housing Survey shows the PRS has remained at 20% of the market for the last few years. However, around 20% of our members have consistently signalled their intentions to sell property over the last 18 months.

“The full effects of the section 24 tax changes have yet to be seen as other market factors, such as Brexit fears, have influenced behaviour.”

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The chancellor, Phillip Hammond, is under intense pressure from the property industry to relax the taxes on buy to let when he presents his next budget on 29 October.

The Treasury is understood to be considering a number of proposals for property tax reforms, such as a cuts to capital gains tax for landlords who sell to sitting tenants – at a cost of £1.3bn in lost tax – as well as tax breaks for landlords who offer longer tenancies.

But it is also believed to be examining ways to close loopholes which have allowed many landlords to escape higher buy to let taxes by “incorporating” their property portfolios.