Government must boost the build-to-rent sector by exempting investors from a stamp-duty hike targeted at landlords and relaxing planning rules.
That is the view of the British Property Federation (BPF), a trade association, in its submission to the Treasury ahead of Chancellor Philip Hammond's autumn statement, his first since replacing George Osborne.
As of April 2016, purchases of additional properties are subject to a 3% levy on top of the basic stamp-duty rates, to cool buy-to-let demand and reduce competition in the market for first-time buyers. But the BPF said this "sent out a negative message to almost £50bn of investment capital that is interested in build-to-rent opportunities in the UK".
"While we understand the rationale behind its application to all owners of multiple homes, there is a strong argument that exempting investors that contribute towards the delivery of new homes would have a positive impact on that delivery," said the BPF's submission.
"If the government would like to retain some form of charge on owners of multiple homes, we would encourage it to be more targeted in its approach. For example, a capital gains tax surcharge on second homes which are not rented out may be a more appropriate option.
"Such a measure would not have an adverse impact on professional investors and importantly, the supply of new homes. Furthermore, it would act as an incentive to second home owners to rent their additional homes, thus increasing supply."
The BPF also suggested planned cuts to tax reliefs for landlords, including one that allows them to offset interest costs against their tax bill, should be reviewed because they may deter investment in build-to-rent.
Moreover, it said the government should allow for a "clearer national planning policy for build-to-rent" by making it distinctive from affordable and private sale housing and to give developers "flexibility on space standards" by allowing homes to be up to 10% smaller.
The BPF released figures showing a 214% increase in build-to-rent units under construction in the UK over the year to October 2016, to 22,293. The number of build-to-rent units with planning permission jumped 230% to 35,121.
"The build to rent sector has been one of the good news stories of the housing market over the past few years and it is great to see quality rental homes now coming on to the market at scale," said Melanie Leech, chief executive of the BPF.
"The truth is the sector could be delivering so much more, however, if it can find the opportunities and maintain confidence to invest. The Brexit negotiation period provides a window of opportunity to channel even further investment into this form of housing supply.
"The sector was kick started a few years ago with support from government and further modest planning and SDLT changes we believe could firmly send it into overdrive."
There is an ongoing shortage of housing in many areas of the UK, particularly London. Completions of new housing units are running at around half the level needed to meet demand. The government is targeting a million new homes by 2020 and recently unveiled a £5bn package of financial support for housebuilders.