“I think they could see their rents go up because of the rising rates, especially in areas of Sydney or Melbourne or anywhere in Australia where the rental situation is dire,” she said.
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“If you also take into account the reopening of the borders, this could further fuel the demand for rental accommodation, and we could see more investors moving their properties away from residential rentals and back to short-term platforms like Airbnb as tourists return. This means investors may have more room to raise rents accordingly.
The prospect of further rate hikes on the horizon could also tempt some investors to sell and deter others from entering the market. The Australian Bureau of Statistics’ latest figures for April showed the biggest drop in lending to investors since May 2020.
The recent Domain rental vacancy rate report showed that rental vacancies are currently at crisis levels, ranging from 1.6% in Melbourne and 1.4% in Sydney, to 0.6% in Brisbane and 0.3% in Adelaide.
The head of the research and economics area, Dr Nicola Powell, explains that the extent to which tenants could be criticized depends on the vacancy rate in their particular location and the situation of their landlord.
“If the investor needs cash to replay their mortgage, they may be very sensitive to rate increases and want to pass on the additional costs,” she said. “But if they’re already biased negatively, they might not be so confused by the upside.
Sydney’s vacancy rate is currently at 1.4%. Credit:
“Certainly, tenants coming to the end of their lease will be more vulnerable to higher rents.”
However, reports come in all the time about tenants being evicted so landlords can raise rents, according to NSW Tenants’ Union chief executive Leo Patterson Ross.
“If landlords think they can get higher rents, we see a lot of tenants being evicted,” he said. “Or if tenants don’t have a rental alternative, they could see their landlord pass on the higher interest rate and pay it.
“Landlords are always at risk of losing a good tenant this way, however, and sometimes the value of the increased rent can be wiped out by the period when their tenancy is then vacant.”
According to Sean Langcake, head of macroeconomic forecasting at BRI at Oxford Economics, landlords who raise rents don’t always succeed, but the problem is that the rental market isn’t very transparent.
“The interest rate is just one factor in determining rents, but it can be very difficult for tenants to know if they’re being offered a good deal,” he said. “And if the rise is too high, they still often don’t know if they could find better rent elsewhere.”