Tax policies should support the development of new properties for tenants, according to the Residential Landlords Association (RLA) and the National Landlords Association (NLA).
The trade bodies are calling for the new chancellor Rishi Sunak to scrap the additional three per cent stamp duty levy if investors are developing new properties or converting large properties into smaller units.
There should also be a Capital Gains Tax exemption where landlords sell a property to a sitting tenant, the groups said.
And there should be tax relief for landlords to invest in measures to improve the energy efficiency of a rented property or let adapted properties long-term to tenants with accessibility needs.
It comes after a recent study showed the number of landlords has fallen to a seven-year low.
Separate research has showed investors are opting for holiday lets over long-term rentals.
David Smith, policy director for the RLA, said: “The tax system for rented housing is failing.
“It encourages the provision of holiday homes over long-term properties to rent, it deters investment in new housing and provides no support to those wanting to make energy efficiency improvements.
“For the sake of those living in rented housing or who are looking for accommodation, ministers need to use the Budget to urgently change course to ensure that their tax policies are positively aligned with their wider housing objectives to encourage good landlords to provide long-term affordable housing.”
Chris Norris, director of policy and practice at the NLA, added: “The tax system with which landlords must contend is no-longer fit for purpose.
“HM Treasury has constructed a series of barriers to investment, which make running an efficient and successful lettings business borderline impossible.
“As he prepares his first Budget, we hope that the Chancellor will take the opportunity to use taxation to encourage investment in new and existing homes alike. Mr Sunak must recognise that housing costs can only be reduced by making it easier, not harder, to provide good quality rented homes.”
“The emphasis must be on finding solutions and encouraging investment across tenures amongst a diverse range of providers.”