The number of properties registered with each letting agent branch dropped by 5% to an average of 172 last month.
Supply in Scotland stands above the national average, with 280 properties per branch, while the supply of rental properties in London is less than half this amount, at 116 properties.
Demand for rental accommodation increased in January with an average of 31 prospective tenants now registered per branch.
As a result of this growing demand, the number of agents reporting rent hikes for tenants rose, with three in 10 reporting an increase in rent – the highest since September 2015.
David Cox, managing director of ARLA, said: “Supply of housing continues to be a problem and tenants bear the brunt of this with more people competing for properties at higher prices. The majority of tenants find that it is impossible to save very much at the end of the month to put towards buying their own home.
Further findings published by ARLA showed that almost two-thirds of its members think the Chancellor’s reforms to Stamp Duty will push landlords out of the market, causing supply to drop further. Almost six in 10 anticipate the 3% Stamp Duty premium imposed on landlords will push up rent costs.
However, nearly half of ARLA agents say they have seen an uplift in interest from buyers looking to invest in buy-to-let properties before the 1 April Stamp Duty deadline – a rise from 24% from last month.
Cox added: “A few weeks into the new year and the April deadline for the Stamp Duty surcharge is looming with interest from buyers looking to invest in buy-to-let properties to beat the deadline is ramping up. The findings from our members echo our concerns that efforts to penalise buy-to-let landlords will ultimately impact those entering and currently in the rental market, as by increasing rents landlords will seek to recoup their costs. Rent costs are already rising exponentially, and tenants are feeling the strain of a crowded marketplace.”