Growth in households renting rooms to lodgers has slowed dramatically, raising concerns about an already constrained rental market. The number of rooms available to lodgers rose just 1.5% in the past year, down from 19% growth the previous year.
Flatshare site SpareRoom warns that without intervention, the slowdown threatens to worsen the housing crisis. The company is calling for updates to the Rent a Room scheme, which allows people to earn tax-free income from renting furnished rooms in their homes.
Lodger landlords account for 25% of all rooms available in shared accommodation. Their contribution helps moderate rent inflation, with lodger rooms costing 13% less on average than other shared rentals.
However, the Rent a Room scheme threshold has remained frozen at £7,500 annually (£625 per month) since 2016, when average room rents were £573. Over the past five years, the UK average room rent has climbed 28% to reach £753 per month in Q3 2025. Nearly six in 10 (58%) UK postcode districts now have average rents exceeding the tax-free monthly threshold.
The outdated threshold creates a barrier for potential lodger-landlords. Household earnings could be boosted by an average £9,036 annually from renting out one room, but higher rents push more homeowners into taxable territory, requiring them to complete tax returns.
SpareRoom surveyed 1,582 former lodger landlords and prospective ones in July 2025. The results showed 83% would be more likely to rent out a room if the tax-free threshold increased, while 40% said they'd stopped because their earnings would exceed the limit and trigger tax obligations.
Data shows UK households seeking lodgers peaked after the last threshold increase in April 2016. Numbers dropped during the pandemic and, while recovering, haven't returned to previous levels. Growth over the past year has been unusually subdued.
A separate issue involves holiday lets exploiting the scheme. Because the tax relief contains no minimum stay requirement, short-term holiday lets can access the same benefits intended for long-term lodgers. SpareRoom argues that introducing a 31-day minimum stay requirement would close this loophole and redirect supply back to the rental market.
England, Wales and Scotland contain an estimated 28 million empty bedrooms. While not everyone can rent these out, freeing just 5% would provide affordable accommodation for 1.4 million people.
"People rent out rooms in their homes for all sorts of reasons – financial, practical, and social – and in doing so they inject desperately-needed supply into the UK room rental market, which is suffering under the weight of intense demand that's inflating rents," said Matt Hutchinson, director of SpareRoom.
"The original intention of the Rent a Room scheme was to increase the quantity and variety of low-cost rented housing. However, because the scheme doesn't stipulate a minimum length of stay, in recent times it has also been used by those renting out furnished rooms to holidaymakers on sites like Airbnb. It's time this loophole was closed so the scheme can help renters as intended."
Hutchinson argues that tax revenue lost from raising the threshold could be recovered by taxing holiday lets instead.
"We have a housing crisis, not a hotel room crisis," he added. "We have to disincentivise anything that takes away supply from our already underserved rental market and stops people from living well. Rental supply needs a shot in the arm, and tweaking the Rent a Room scheme is a glaringly obvious fix. In the midst of a housing crisis, protecting affordable supply is critical."
