Interest rates

Rising interest rates could drive up rents as landlords also struggle to cover their mortgages

Allan Qi had no plans to become a real estate investor.

The 32-year-old bought a flat in Sydney’s western suburbs six years ago to live in, but when he moved to Melbourne he became a landlord.

But he is also a tenant and has lived in the same house in the eastern suburbs of Melbourne for five years.

The apartment is negatively oriented, so the rent he collects does not cover the mortgage payments.

It’s a fight to balance the budget

With a household income of around $90,000 a year, technology and design professor Allan and his wife Juan are already struggling to keep up with their expenses.

They worry about rising interest rates.

“Very, very nervous, very worried about what’s going on in the future,” Qi said.

Their investment loan is currently fixed, but when it ends, Allan says they will have to raise the rent or sell.

At the same time, he does not know what his owner will do.

“I tried to avoid [putting the rent up] just because being a tenant myself, I understand that we are all struggling a bit,” Mr. Qi said.

“But because that interest rate is going to go up a bit, I’m going to have to pass it on so I can keep surviving.”

The rental market is already in crisis

This is exactly what most of Australia’s 2.8million tenants fear, says Edwina MacDonald, acting chief executive of the Australian Council of Social Services (ACOSS).

“People are really scared of what rising interest rates will mean for tenants, that landlords will pass on rising rates to tenants.”

After years of historically low interest rates, the Reserve Bank began raising the official exchange rate in May to combat rising inflation.

Fixed rates are already rising.

And there will be many more rate hikes to come, with RBA Governor Philip Lowe indicating that the cash rate could reach 2.5% (or beyond, as some economists predict).

This means that many of the variable rates that lenders charge borrowers could reach around 5% or more.

It is difficult to determine exactly how much rate hikes have influenced rent increases so far, especially since rents can be increased at different stages of the year. But prices continue to rise.

“Since the first interest rate hike on our Rent Index, rents have risen another 2.4% nationally,” said Louis Christopher of SQM Research.

The rental market has been tight for months. National vacancy rates are just 1%, the lowest in 16 years.

“It’s a very tough market right now,” said Better Renting’s Joel Dignam.

“The amount of rent [increases] that we are seeing and the inflexibility of the owners is quite concerning.”

Rents are rising across the country

The lowest vacancy rates are in regional coastal areas, including the Gold Coast, northern New South Wales and Victoria’s Mornington Peninsula.

People have moved to these places during the pandemic, but there just aren’t enough houses.

The lack of supply has driven prices up across the country – the national median rent sits at $510 a week.

In Canberra, Dom Craddick packs his home in the inner north.

He and three housemates have lived there for six years, but in May they received an email from their agent saying the rent would increase by $50 a week to $900 – the biggest rent increase they’ve ever had .

A man with curly hair looks directly at the camera
Dom Cradick and his housemates have decided to move out of their Canberra home after receiving a rent increase notice.(ABC News: Provided)

“We said we wouldn’t pay more than $20 [extra] per week is how much our salaries have increased during that time,” Mr. Craddick said.

“Now we are leaving.”

But he is one of the lucky ones who was able to find another house with better value for money.

At a time when everything from food to gas to energy is on the rise, many are shut out of the rental market altogether, says Edwina MacDonald.

“Right now we are at this crisis point in the housing, rental and social housing markets,” she said.