Owners of investment properties in one of Queensland's tightest rental markets have described a rise in council rates as a "blatant money grab" that will further worsen its housing crisis.

Cairns Regional Council has written to landlords across the city, advising them of a potential rate hike of between 15 and 40 per cent for non-principal places of residence from the 2023-24 financial year.

The council said the move would bring it in line with other regional centres, such as Townsville, Noosa and the Sunshine Coast.

But investors have questioned the timing of the rise, as the city grappled with one of the lowest rental vacancy rates in the country, below 0.6 per cent, amid reports of rental bidding wars and families living in tents.

Tom Badstuebner, who owns four units on a single block of land at Gordonvale in the city's south, said rate hikes could be the tipping point after a series of interest rates rises and the cost of home insurance.

"The council isn't offering any new services or infrastructure, or anything to compensate for it," Mr Badstuebner said. 

He described it as a "ridiculous decision, especially when you consider the housing crisis".

"This will just see landlords put up the rent, which will put more pressure on people that are already barely coping with the rising cost of living," Mr Badstuebner said.

Choosing to sell up

Mr Badstuebner said rates on his units increased from $7,894 a year to $10,435 after the council changed the rating category for multi-unit dwellings earlier this year.

He said they had decided to sell.

"We are simply small investors with a mortgage," Mr Badstuebner said.

"You're going to see more and more people like us just unable to afford to keep rentals. They will be snapped up by owner-occupiers and then you have fewer rentals on the market."

Hikes apply to base rate

Cairns Regional Council Deputy Mayor Terry James said the rate rise would be at the lower end of the scale and only apply to the base rate, not the entire rate.

He said 75 per cent of property owners in Cairns paid a base rate of $962 a year, meaning a 15 per cent rate-increase would amount to $2.70 per week.

"We are seeing lots of confusion, so there is going to be another letter going out to clarify that," Cr James said.

He said the money raised would not be for any specific purpose, but rather to keep providing council services to the community.

"We promised that we would never go above the Consumer Price Index."

Fears of rent increases

But Sally Watson, manager of not-for-profit Shelter Housing Action Cairns, said she was "disappointed and shocked" at the proposed rate hike.

"We are extremely fearful that increasing rates on private rental housing properties will act to put further upward pressure on rents and may also decrease supply," she said. 

"It doesn't make sense in the current context of housing needs among vulnerable households or rising interest rates and other costs for private landlords.

Ms Watson said its rental housing supply was "critically low" and its "rental housing costs were rising beyond many household's means".

She said it had resulted in "sustained, unprecedented pressure on social services for assistance with housing for more than 12 months now".