Private landlords who provide lower-rent, longer-term tenancies for young people and families should get tax breaks to help avert a looming “homelessness disaster”, a thinktank says.

The Joseph Rowntree Foundation predicted 1.5 million extra 18- to 30-year-olds will be priced out of buying their own homes within eight years, flooding the rental market.

Homelessness among the under-25s will rise to 81,000 it calculated – with an extra 500,000 young people also forced to live with their parents well into their 30s.

Without urgent action to improve the rental market and build more properties, up to 400,000 risked being “excluded completely” – mainly less well off families, it warned in a report.

The foundation said international experience showed financial incentives through the tax system were effective in encouraging landlords to offer cheaper rents and more stable tenancy terms.

They could also overcome obstacles placed by lenders on buy-to-let mortgages, it suggested.

The expansion of local letting agencies dedicated to working with vulnerable young people, could also ease the crisis.

The report’s lead author David Clapham said: “With 1.5 million more young people no longer able to become home-owners by 2020, it’s vital we take the opportunity to make renting work better.

“To do this we need strong political leadership that is willing to work with both landlords and tenants to make it more affordable and stable for ‘generation rent’.

“Young people are at a double disadvantage: it takes longer to raise enough for a deposit and their wages are generally lower.

“But there are simply not enough homes and those we do have cost too much to rent or buy.

“While more housing would help address this, it may not come quick enough for young people forced into renting in eight years’ time.”

JRF programme manager Kathleen Kelly said: “Renting is likely to be the only game in town and young people are facing fierce competition to secure a home in what is an already diminished supply. We need to avoid turning a housing crisis into a homelessness disaster.”