Investors likely to pass on the cost of latest rise
The Reserve Bank’s latest rate hike is unlikely to affect only homeowners, as landlords are likely to pass the cost of climbing mortgage rates on to their renters.
Weekly asking rents have already skyrocketed over the past 12 months in all parts of the country as supply tightened and demand grew, The Australian reported.
On Tuesday, the RBA hiked rates for the fifth straight time, bringing the cash rate to 2.35%. As recently as May, the rate sat at a record low of 0.01%.
While banks were slow to respond to the latest hike – as of Wednesday afternoon, none of the big four had moved to raise mortgage rates – SQM Research managing director Louis Christopher said he believed the hike would eventually hit renters’ pocketbooks.
“There is this perception that no matter the market, landlords will pass on the costs,” Christopher told The Australian. “They can’t do that in a soft market. At the moment, they are in a significant position to pass the rate on to tenants … whether like-for-like or maybe even more in light of inflation.”
The national vacancy rate held steady at just 1% in July, spurring rents in capital cities to rise 1.2% over the month, SQM said.
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Brisbane saw the most significant change in rent costs over the past 12 months – up 20.7% – followed by Sydney with a 19.5% rise and Adelaide with an 18.1% hike, The Australian reported.
PropTrack economist Paul Ryan said that while interest rates and rent prices were related, their relationship was complicated.
“I don’t think it is right to say rates are ‘passed on’ by landlords,” Ryan told The Australian. “Interest rates will put pressure on the cash flow of investors and lead to some taking their properties from the market.”
The latest rate hike comes two years after the federal Greens proposed a two-year rental freeze, and a similar proposal was made in Queensland. Scotland has introduced a rental freeze as part of a broader plan to alleviate cost-of-living pressures, The Australian reported.
Christopher said a similar plan in Australia would be a “recipe for disaster,” pushing more landlords out of the long-term rental market when supply was already sparse.
Rising rental costs could spur more investors to buy, which Ryan said could have an “equilibrium effect” on the rental market.
“Although it is not necessarily good news, hopefully [rising rents] will entice into the market, and that is what we hope will bring the market back to balance,” he told The Australian. “That is the unfortunate reality of renting in the housing market at the moment.”
