The chancellor, Philip Hammond, is considering using this month’s budget to introduce a “good landlord” tax break rewarding investors who sell properties to sitting tenants amid a housing crisis that has left 40% of young adults unable to buy a home.

The Treasury is weighing up a new Help to Buy proposal whereby landlords would not have to pay capital gains tax when selling up to tenants who had been living in a property for at least three years. The plan has been drawn up by the right-wing thinktank Onward, which suggests the £1.3bn-a-year cost of the policy could be covered by curtailing other tax perks enjoyed by buy-to-let investors.

“Today’s renters are older, more likely to be in rented property for longer and more likely to have children than any generation before them,” said the Onward director, Will Tanner, who is a former Downing Street policy chief.

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Under existing rules, investors who sell a rental property are liable to pay capital gains tax at 28% on any profits they make, which is a big disincentive to selling up. Under the Onward plan the “Good Landlord” would be eligible for tax relief with the windfall split equally with the tenant, who could use it as part of their mortgage deposit.

The thinktank estimates that the average gain per property would be £15,000, meaning a first-time buyer could expect to benefit by £7,500. Because the gain is affected by property prices and their historical growth, a tenant in London could receive £19,500 under the scheme.

An estimated 88,000 households could take up the relief each year, meaning nearly half a million households could benefit over five years. Accounting for multiple-person households, this would help a million people move from the private rented sector into homeownership by 2023, Onward claims.

However, previous attempts by the government to tackle the housing crisis, such as the Help to Buy subsidy scheme, have been criticised for pushing prices up and actually making the problem worse.

The plan emerged as research by the Institute for Fiscal Studies (IFS) shed light on the collapse in the number of young Britons who own their own homes. In 1996 more than 90% of 25- to 34-year-olds could afford to buy the cheapest house in their area, provided they had a 10% deposit and borrowed 4.5 times their salary, its analysis shows. However, in 2016 only 60% of young adults could do the same.

“Big increases in house prices compared to incomes over the last two decades mean that it is increasingly difficult for young adults to get on the housing ladder, even if they do manage to save a 10% deposit,” the IFS research economist Polly Simpson said. “Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average-priced one. These trends have increased inequality between older and younger generations, and within the younger generation, too.”

Other studies have suggested that one in three millennials are unlikely to ever own their home, with many forced to live and raise families in insecure private rental accommodation throughout their lives. The IFS has previously said that the chances of a young adult on a middle income owning a home in the UK had more than halved in the past two decades.

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After adjusting for inflation, average house prices in England have risen by 173% since 1997, compared with increases in young adults’ real incomes of only 19%, according to the IFS. As a result of this the share of 25- to 34-year-olds who own their own home fell from 55% to 35% between 1997 and 2017. The picture is particularly bleak in London, where by 2016 only one in three young adults could borrow enough to buy their first home, whereas 20 years earlier that figure was 90%.

The IFS says the key to resolving the housing crisis is to increase the supply of homes available but it points to major hurdles such as tough planning restrictions – for instance, those protecting green belt land – that hold back their construction in high-demand areas such as London and the south-east.

Easing planning restrictions would increase homeownership and reduce both property prices and rents, the IFS says, concluding: “Without increasing supply, policies to help young adults get on to the housing ladder will continue to push up house prices – and potentially rents too.”