Could the peak in interest rates signal an end to rising rents?

July 25, 2023

In this Property Pulse, Eliza Owen explores the correlation between the cash rate and rents, as well as investor activity more broadly.

As inflation moves past its peak, the RBA is getting closer to the end of rate hikes. This could be good news for renters, because growth in rent values usually tracks roughly with movements in the cash rate. Not only is the cash rate expected to peak this year, but each of the major banks is now forecasting a reduction in the cash rate through 2024. Annual rent growth, while still high, has gradually been trending lower since a peak in December 2022.

How are rents and interest rates related?

Rents and interest rates move together over time, so a peak in the cash rate may indicate that growth in rent values is also at (or near) a peak. Figure 1 illustrates this correlation, showing Australia’s cash rate against annual changes in imputed rent values.


There are multiple reasons these two series might move together. For one, rents are an input in measuring inflation. When rents rise, inflation can rise, and this prompts the RBA to lift interest rates.

Secondly, interest rates can impact rent. Higher interest rates mean investment property becomes less attractive, which could slow the delivery of new rental stock coming to market, and this could push rents higher.

Other factors affecting investment activity can have an impact on the rental market. For example, the uptick in rents over the year to September 2017 may be the result of temporary restrictions on investment lending from APRA in late 2015. Rental supply dropped off in 2019 as housing markets went through a broad-based decline, and investor interest in property waned.

Have higher interest rates forced investors to increase rents?

Investors may have increased rents to help fund higher mortgage costs, but it’s unlikely rents have been increased to the full extent of interest cost increases. ATO tax data from the 2020-21 financial year indicated close to half (47.1%) of Australian property investors were negatively geared, meaning rents were not covering interest payments on many investments even before interest rates started to rise.

To put recent rate hikes in perspective, CoreLogic monthly median rent values are estimated to have increased $225 per month over the year to June. However, mortgage costs of a new investment loan are estimated to have increased by $948 per month on the median Australian dwelling value.

Investors who have no mortgage or a small mortgage may have also taken advantage of tight rental market conditions to increase the return on their investment properties. Irrespective of mortgage costs, rents can generally only rise substantially if the rental market is competitive, and tenants cannot find alternative accommodation to bargain with; in other words, rents rise when demand for rental accommodation is outweighing supply.

Looking at rental supply in the context of rate movements (figure 2), it’s clear that a tightening in the rental market occurred well before interest rates started to rise. The rental market started to tighten in mid-2020, while the cash rate wouldn’t go up for another two years. The rental market tightened from a number of factors besides interest rates, including investor uncertainty, less share-housing, and higher income growth. Higher interest rates have slowed investment activity through 2022, and the first few months of this year, but they haven’t been the sole cause of rental increases.


Rent growth is expected to slow in 2024 for a number of reasons:

  • As renting becomes less affordable, tenants may turn to re-forming share-houses, which will reduce rental demand.
  • Construction cost increases are easing, and fewer approvals means the construction space may also unwind next year. As the elevated pipeline of residential dwellings under construction are completed, renters who may have been waiting for new homes to be completed can exit the rental market.
  • 2024 may see a lift in rental supply from government initiatives around social and community housing provision, and build-to-rent projects will gradually flow into the market.
  • Housing finance data shows investors are already returning to the housing market, and this bounce-back is likely to be stronger in 2024 if interest rates decline and home values continue to rise. Figure 3 shows the monthly volume of housing finance lent for investment property purchases, which shows investor activity ramping up, coinciding with the start of a recovery in the CoreLogic national Home Value Index through March.


While national rent values have never seen an annual decline in the CoreLogic series, rent growth is likely to continue moderating. Canberra rent values are down -2.8% in the year to June (albeit off the back of a 17% uplift through COVID), and annual growth in regional rents has slowed to 4.9% in the year to June, down from a peak of 12.5% in the year to November 2021. While conditions will vary at a granular level, the rental market as a whole is likely to loosen in 2024.



You might be also interested in

Article Banner
If housing is so undersupplied, why are some markets falling in value?
The current state of the Australian housing market is often characterised as undersupplied. Supply is at the centre of government policy approaches to housing, and the latest reporting from Housing
Gettyimages 1922023181
Here we go again: Shipping disruptions could pose major risk to interest rate cuts
‘Left of field’ shocks to global supply chains such as the tensions playing out in the Red Sea are the biggest risk to inflation and interest rates, the Reserve Bank
Construction cost growth ‘returns to trend’
A reacceleration in the quarterly pace of growth for national construction costs is suggested to be a return to trend rather than a new surge, according to CoreLogic. The Cordell Construction
Rental market to reach ‘tipping point’ in 2024: Domain
Domain’s Dr Nicola Powell told the Savings Tip Jar podcast the rental market will likely ease some time next year as more renters buy property or move into share houses,
Monthly Housing Chart Pack – January 2024
Here are the must know stats, facts and figures on Australia’s residential property market. Annual growth in home values have seen ups-and-downs while rent values have increased at more than
6 strategies to help you renegotiate your home loan and save money
Home loans are at their most expensive in 11 years, prompting a mad scramble among heavily mortgaged homeowners to either switch lenders or negotiate a better deal with their existing
Richmond: Where you’ll find everything from cheap street food to luxury furniture
Richmond’s Barkly Gardens are popular with locals. Photo: Greg Briggs Bridge Road is back. The news from Richmond has the ailing retail strip shucking off the doldrums and getting a
Home prices set to break new records in 2024, with three cities tipped to outperform all others
Stage three tax cuts, soaring population growth and lagging housing supply could see national property prices rise up to 4% over 2024, and as much as 8% in some capital
Monthly Housing Chart Pack – December 2023
Each month the CoreLogic Research team puts together a Housing Chart Pack, with all the latest stats, facts and figures on the residential property market, such as the combined value
Aussies amp up energy efficiency in homes as cost of living soars
With the cost of living higher than it has been in decades, homeowners and renters are looking for ways to reduce bills and save some money. Those living in homes

Get your Free Property Guide.

Here goes your text ... Select any part of your text to access the formatting toolbar.

Get your free Sales Report for Could the peak in interest rates signal an end to rising rents?

Get your free Sales Report for Could the peak in interest rates signal an end to rising rents?

Subscribe to hear the latest

Start The Conversation Today.

Call us on:

1300 850 730

Request a Callback:

Send us a Message:

Privacy Policy

Get your Free Property Guide

Get your free Suburb Report for Could the peak in interest rates signal an end to rising rents?

Privacy Policy

Who we are

Suggested text: Our website address is:


Suggested text: When visitors leave comments on the site we collect the data shown in the comments form, and also the visitor’s IP address and browser user agent string to help spam detection.

An anonymized string created from your email address (also called a hash) may be provided to the Gravatar service to see if you are using it. The Gravatar service privacy policy is available here: After approval of your comment, your profile picture is visible to the public in the context of your comment.


Suggested text: If you upload images to the website, you should avoid uploading images with embedded location data (EXIF GPS) included. Visitors to the website can download and extract any location data from images on the website.


Suggested text: If you leave a comment on our site you may opt-in to saving your name, email address and website in cookies. These are for your convenience so that you do not have to fill in your details again when you leave another comment. These cookies will last for one year.

If you visit our login page, we will set a temporary cookie to determine if your browser accepts cookies. This cookie contains no personal data and is discarded when you close your browser.

When you log in, we will also set up several cookies to save your login information and your screen display choices. Login cookies last for two days, and screen options cookies last for a year. If you select “Remember Me”, your login will persist for two weeks. If you log out of your account, the login cookies will be removed.

If you edit or publish an article, an additional cookie will be saved in your browser. This cookie includes no personal data and simply indicates the post ID of the article you just edited. It expires after 1 day.

Embedded content from other websites

Suggested text: Articles on this site may include embedded content (e.g. videos, images, articles, etc.). Embedded content from other websites behaves in the exact same way as if the visitor has visited the other website.

These websites may collect data about you, use cookies, embed additional third-party tracking, and monitor your interaction with that embedded content, including tracking your interaction with the embedded content if you have an account and are logged in to that website.

Who we share your data with

Suggested text: If you request a password reset, your IP address will be included in the reset email.

How long we retain your data

Suggested text: If you leave a comment, the comment and its metadata are retained indefinitely. This is so we can recognize and approve any follow-up comments automatically instead of holding them in a moderation queue.

For users that register on our website (if any), we also store the personal information they provide in their user profile. All users can see, edit, or delete their personal information at any time (except they cannot change their username). Website administrators can also see and edit that information.

What rights you have over your data

Suggested text: If you have an account on this site, or have left comments, you can request to receive an exported file of the personal data we hold about you, including any data you have provided to us. You can also request that we erase any personal data we hold about you. This does not include any data we are obliged to keep for administrative, legal, or security purposes.

Where your data is sent

Suggested text: Visitor comments may be checked through an automated spam detection service.

Get your Free PDF copy of Make Money Simple Again