Many people assume that when interest rates rise, property investors automatically pass on these extra costs to tenants. But is that true?
Not really, according to a research report published by the Reserve Bank of Australia (RBA).
“On average, we find that for every dollar increase in their mortgage interest costs, investors increase their rents by one cent,” the report said.
“To put this effect in context, the median monthly interest payment for leveraged investors increased by around $850 between April 2022 and January 2024. Our estimate suggests that this $850 increase in interest costs would have raised rents by less than $10 per month, or just over $2 per week.”
The “key driver of rents” is actually “housing demand relative to the stock of properties available” – in other words, supply and demand (see graph).
“Indeed, the RBA’s assessment is that high rent growth in recent years reflects this fundamental force. Housing demand has been strong, supported by high population growth and increased preference for more space, while supply has been hampered by ongoing capacity constraints and increases in construction costs.”
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