23/07/2023
Could the peak in interest rates signal an end to rising rents?
1. The correlation between the cash rate and rent values suggests that as the cash rate peaks and begins to decrease, rent growth is likely to slow down as well. 2. Multiple factors contribute to the relationship between interest rates and rent, including rents being an input in measuring inflation and higher interest rates making investment property less attractive, potentially reducing rental stock and increasing rents. 3. It is unlikely that higher interest rates have forced investors to increase rents to the full extent of interest cost increases. Many Australian property investors were already negatively geared, meaning rents did not cover interest payments even before interest rates started to rise. 4. The tightening of the rental market began before interest rates started to rise, with factors such as investor uncertainty, less share-housing, and higher income growth playing a role. 5. Rent growth is expected to slow in 2024 due to factors such as the reformation of share-houses, easing construction cost increases, government initiatives around social and community housing provision, and the return of investors to the housing market if interest rates decline and home values continue to rise.
