Rental supply from households taking in lodgers has shown minimal growth despite ongoing pressure in the UK housing market, according to recent research. The flatshare platform SpareRoom reports that the number of rooms available to rent in people’s homes increased by only 1.5% over the past year, a significant slowdown compared to a previous 19% surge. This stagnation has prompted calls to reform the Rent a Room scheme to better support landlords and increase affordable housing options.

Current Trends in Lodger Supply

The UK rental market continues to face intense demand, pushing rents higher and making affordable accommodation increasingly scarce. Despite this, the supply of rooms from live-in landlords has barely risen, with SpareRoom data showing just a 1.5% increase in available rooms over the last 12 months. This contrasts sharply with the 19% growth observed in the prior year, indicating a slowdown in new lodger offerings.

Live-in landlords contribute around 25% of all shared accommodation, providing rooms typically priced about 13% below standard market rents. This discount helps to moderate rent inflation, which has seen a 28% rise over five years, with the UK average rent reaching £753 per month in the third quarter of 2024.

Issues with the Rent a Room Scheme

The Rent a Room scheme, designed to encourage homeowners to rent out spare rooms tax-free up to a threshold, has not been updated since 2016. At that time, the average monthly rent was £573, but today, letting a spare room could generate approximately £9,036 annually, with £7,500 tax-free under the scheme. With 58% of postcode districts now experiencing rents above £625 per month, many landlords risk exceeding the tax-free limit and facing unexpected tax liabilities.

Matt Hutchinson, a director at SpareRoom, highlights that the scheme’s original intent was to increase affordable rental supply. However, a loophole allows rooms to be let short-term to holidaymakers via platforms such as Airbnb, which diverts supply away from long-term renters. Hutchinson advocates closing this loophole by introducing a minimum stay requirement and raising the tax threshold to reflect current rent levels. He suggests that any tax revenue lost by increasing the threshold could be offset by taxing short-term holiday lets.

Landlord Concerns and Market Impact

SpareRoom surveyed 1,582 individuals who have rented to lodgers or considered doing so. The majority indicated that a higher tax-free allowance would encourage them to rent out rooms again. Many have exited the market due to concerns about surpassing the current tax threshold, which has not kept pace with rising rents. Although the sector saw some recovery after pandemic lockdowns eased, growth in lodger supply has since slowed.

The persistence of the short-let tax break loophole means that some landlords continue to benefit from tax relief while renting rooms for brief holiday stays rather than to long-term tenants. Introducing a 31-day minimum stay requirement would help ensure that tax relief supports housing supply rather than short-term guest accommodation.

Potential for Increasing Affordable Housing

There are an estimated 28 million empty bedrooms across England, Wales, and Scotland. If just 5% of these were made available for rent, it could provide homes for approximately 1.4 million people currently struggling to find affordable accommodation. Encouraging more landlords to take in lodgers through updated tax incentives could help alleviate housing shortages and ease rent inflation.

Implications for UK Landlords

For landlords and letting agents, the current Rent a Room scheme presents both opportunities and challenges. While renting out spare rooms can provide a valuable income stream and help meet housing demand, the outdated tax threshold risks imposing unexpected liabilities. Understanding these rules and advocating for reforms could benefit landlords by making lodger rentals more financially viable and attractive.

Landlords should also be aware of the potential impact of short-let regulations and consider the benefits of longer-term lodger agreements to ensure compliance and maximise tax relief.

Looking Ahead: TLA Trusted Partners Hub

The Landlord Association (TLA) is launching a new Trusted Partners Hub in Q1 2026. This platform will feature verified and approved service providers selected to support landlords, tenants, and property management businesses. Legal, trades, insurance, financial, mortgage, tenant screening, and other service providers are invited to register their interest to join the hub at landlordassociation.org.uk/become-a-tla-service-partner/.