Knight Frank says the incoming Labour government faces a potential clash between what is politically desirable and economically possible, in terms of rental sector reform.

Tom Bill, head of residential research at the lettings and sales agency, says: “The risk for the lettings market is the introduction of policies that make it too financially punitive to become or remain a landlord, which could result in more owners selling up and higher rents.

“The Labour Party will revive the abandoned Renter’s Reform Bill in some form and had previously said it would end no-fault evictions on its first day in power. In an encouraging sign the party understands the picture is more nuanced, Angela Rayner recently told LBC: ‘That’s a simplistic way of looking at it.’

Knight Frank also insists that the courts system must be working before any change is made to eviction legislation.

Bill continues: “Labour has also pledged to end so-called bidding wars, a policy based on the assumption that high demand and low supply is a permanent feature of the lettings market. As we are currently seeing at the higher-value end of the London market, rising supply means asking rents are rarely met at the moment.

“Labour also appears to be adopting a more pragmatic approach to leasehold reform, rowing back on earlier plans to abolish the leasehold system in its first 100 days. How far and fast it goes will be dictated by how much of a priority the issue is.”

The agency also warns on tax changes beyond those already ruled out by Labour during its election campaign.

Bill goes on: “Capital Gains Tax (CGT) is one they have not ruled out increasing, in a potential further deterrent for landlords. However, they have said they will not apply CGT to primary residences. Some expect to see CGT changes in the first Labour Budget, but others don’t.”

The agency says that while the route the new government will take to raising revenue remains unknown for now, it should not go too far to avoid losing credibility at the first fiscal hurdle.