Landlords do pass on interest rate hikes to renters but Reserve Bank research suggests only a sliver of overall mortgage repayment growth gets handed down to tenants.
An $850 jump in interest costs - the median monthly increase for a leveraged investor between April 2022 and January 2024 - was thought to directly influence landlords to hike rents by around $25 a month.
The RBA said the findings supported conventional wisdom rents are primarily influenced by supply and demand.
That is, property owners find it difficult to lift prices when there is ample housing supply relative to demand as tenants have the option to move somewhere cheaper.
The relationship between interest rates and rents have come under close scrutiny over the past few years as both have been moving higher at the same time.
While indebted investors passing on higher mortgage costs to renters as interest rates go up feels "intuitive", the research suggested the link was more a case of correlation rather than causation.
That is because both interest rates and rents are influenced by the economic cycle, Declan Twohig, Anirudh Yadav and Jonathan Hambur explained in an article published in the October Bulletin.
When the economy is strong, incomes tend to grow, adding to demand for rental properties and putting upwards pressure on rents.
And, a booming economy is associated with higher inflation and interest rate hikes to slow that price growth.
The researchers drew on tax return data between 2006 and 2019 to estimate the direct pass-through of interest cost changes to housing investors' rental income.
"Overall, we find limited evidence that investors pass-through changes in their interest costs to their rents," the study concluded.
The findings supported the standard view rents were driven by demand for properties relative to supply.
"Indeed, the RBA's assessment is that high rent growth in recent years reflects this fundamental force," the study said.
"Housing demand has been strong, supported by high population growth and increased preference for more space, while supply has been hampered by ongoing capacity constraints and increases in construction costs."
