More than a third of homes sold by landlords last year went straight to first-time buyers, new research shows.
The research from Pegasus Insight also reveals that, on average, every landlord each sold 1.8 homes with sitting tenants.
The firm's Landlord Trends report shows that some PRS homes are being recycled rather than leaving it.
Landlords are selling
The founder and director of Pegasus, Mark Long, said: "Landlord sales do not automatically mean a rental property disappears from the sector.
"In a meaningful minority of cases the property is simply being transferred from one landlord to another and sometimes sold with tenants already in place."
He added: "However, the overall direction of travel still points to a shrinking PRS.
"When a substantial proportion of landlord sales are going to first-time buyers or other owner occupiers, it inevitably reduces the pool of homes available for rent."
Policies must help landlords
The data shows that first-time buyers accounted for 34% of purchases from landlords.
Another 29% were snapped up by residential buyers with no intention of letting.
Mr Long said: "Policymakers must recognise the cumulative impact of ever tighter regulation and rising taxation on landlords, particularly smaller operators.
"Many are deciding that the pressures and uncertainty are no longer worth it."
He added: "This is significant because the PRS provides homes for around 20% of the UK's households, so policy decisions affecting landlords ultimately have consequences for tenants too."
Rental supply falls
The news from Pegasus follows a warning from RICS that rental supply continues to fall, even as tenant demand holds broadly stable.
The Royal Institution of Chartered Surveyors' latest Residential Market Survey, covering the three months to February, shows landlord instructions are still in decline.
More members are expecting rents to rise over the coming quarter as small landlords continue to leave the PRS.
Tarrant Parsons, the head of market research at RICS, said February's survey had highlighted renewed volatility, with early signs of improvement at the start of the year giving way to a deteriorating backdrop.
Government must help landlords
The managing director of Accommodation for Students, Simon Thompson, said: "The data here is interesting, because everyone assumes when a landlord sells up it is automatically bad news for renters, but that's not quite the full picture.
"Around 30% of those sales are just going to another landlord and many are selling with tenants still in situ, so those homes aren't disappearing overnight."
He added: "The bit that should worry people though is that 34% are going to first-time buyers and another 29% to other owner-occupiers, which means the majority of what landlords are selling is leaving the rental sector completely.
"Add in the regulatory pressure and tax changes that are pushing smaller landlords out, and you've got a sector that's quietly shrinking in a way that's eventually going to hit renters hardest.
"The government must start looking at the statistics and bring in policies that help private landlords.”
