When the RBA began raising interest rates in 2022 to combat inflation, mortgage repayments for property owners increased sharply. With the cash rate peaking at over 4%, many landlords saw their loan repayments jump by hundreds or even thousands of dollars a month.

Understandably, many assumed landlords would simply pass on those costs to tenants in the form of higher rent.

But here’s the thing: that’s not how rent prices are determined—at least, not directly.

According to the RBA and housing economists, rents are set by the rental market, not the landlord's individual mortgage situation. If a landlord tries to charge more than the market allows, the property may sit vacant. Rent prices are fundamentally shaped by supply and demand, not the owner’s balance sheet.

So, while interest rates affect investor sentiment and purchasing decisions, they don’t directly dictate what renters will pay. That’s a key distinction.

Australia’s rapid population growth—especially in cities like Brisbane, Sydney, and Melbourne—has put enormous pressure on the rental market.

Driven largely by post-pandemic immigration and returning overseas students, demand for housing has outstripped supply at a pace not seen in years. In some areas, the influx of people has overwhelmed rental availability, causing weekly rents to skyrocket.

This population surge wasn’t met with a matching increase in new housing. Which brings us to the next big factor…

The truth is, we’re not building enough homes fast enough.

Multiple issues are slowing down new supply:

With new builds stalled or delayed, supply isn’t keeping up with demand—particularly in popular regional areas like Toowoomba, Dalby, and Blackbutt, where internal migration is also increasing pressure on the market.

Another major problem? Some property investors are leaving the market altogether.

Why? A mix of:

In places like Victoria, for instance, investors are being hit with more taxes, leading some to sell off rental properties, shrinking the pool of available homes even more.

And when rental stock drops, competition heats up, and prices naturally rise.

Yes—but perhaps not in the way most people think.

High interest rates:

All of this contributes to the supply side of the crisis, but doesn’t directly push up rents on an individual level. Rent prices are still dictated by what tenants are willing (or forced) to pay in a competitive environment.

Solving Australia’s rental crisis isn’t simple—but here are a few strategies that experts believe are essential:

Streamline planning approvals, reduce red tape, and fast-track the construction of affordable housing and build-to-rent developments.

Encourage development in high-demand areas outside the capital cities—like Toowoomba, Dalby, and Blackbutt—where lifestyle appeal is high and land is more available.

Instead of punishing property investors, consider tax breaks or grants to encourage long-term rentals, especially in markets with extreme shortages.

Ensure that population growth projections are aligned with a clear housing plan. It’s not about restricting immigration, but about planning smarter for where and how people will live.

It’s easy to blame rising interest rates for Australia’s rental woes. They certainly play a role, especially in discouraging investment and limiting new development. But they are not the sole cause of the crisis.

The core issue? A mismatch between housing supply and demand, driven by rapid population growth, a sluggish building pipeline, and a rental market that’s struggling to keep up.

Until we address those deeper structural problems, interest rate changes—up or down—won’t be enough to fix the rental crisis.