Reserve Bank rate hikes are affecting rents, but not in the way you think

But that decline would be short-lived — about four years after prices start falling, they would rise again, Tulip predicted. This would be due to the period of higher interest rates slowing the pace of new housing construction and severely limiting the amount of new housing available, of which the first signs are already showing in the Australian construction sector.

“Housing construction has decreased enormously,” said Tulip. “What we’re seeing right now is a huge drop in permits that will flow into housing starts over time and into completions in a year or two and rental offers soon after that.”

The lack of new rental housing would reduce vacancies and drive up rents.

The modeling assumes that the cash rate will remain three percentage points higher over a longer period of time.

dr Chris Martin, a senior research fellow at the UNSW City Futures Research Center who was not involved in the modelling, said the relationship between rates and rents needs to be examined more closely.

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“The other explanation … is the rent increase that we’re seeing right now, if it’s not being driven by interest rates, then by landlords,” he said.

“They use it as a cover for their raises and say, ‘Oh, the RBA is making me do this’.”

If that were the case, Martin said, landlords would draw attention as inflationary pressures, adding fuel to the fire that rate hikes aim to fight.

National spokeswoman for Everybody’s Home Maiy Azize said her coalition of housing companies had heard of landlords using rate hikes as an excuse to raise rents, but she doubted that was the real reason.

“We’re definitely seeing landlords taking advantage of rate hikes and telling tenants that’s the reason for the rent increase,” she said. “It’s a reflection of a longstanding perception that rents reflect the costs of the landlord, but we know that’s not true.”

Azize said rent increases are unacceptable during the cost-of-living crisis.

“It’s pretty bad form at this point to raise rents,” she said. “We know that landlords have other options than raising rents.

“They can write off their losses and get a tax exemption that renters can’t get.”

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Real Estate Institute of Australia President Hayden Groves said landlords would always try to steer their investments positively, but agreed rate hikes had little to do with rising rents.

“It is absolutely a lack of supply that is the fundamental driver in this terrible situation that we are facing,” he said. “A landlord will try to get a market rent paid, but many of them understand the great difficulties their long-term tenants face and will act accordingly.”