Ha, people pay what they can afford or they move to somewhere they can afford. Cannot see what their neighbour has to do with it. Please educate me!
Its fairly simple, houses get put up for rent at a price similar to the other houses in the area, this is influenced by many things, the most important 2 being the yield and supply & demand.
Most houses go for around that 5-6% yield (against the value of the house), so most people are going to put it at a similar rate, but as the supply dries up (because you have investors selling to fho's/oo's) the supply for RENTALS dries up, and the remaining players increase their prices, each pushing for just a bit more rent than the last, and boom, rental cost explosion.
Sure there are no more houses, but there would now be less choice for admittedly fewer renters, but they can be squeezed harder, and they either can't buy a house, or don't want to make such a big commitment, so they pay the higher rent.
Obviously affordability comes into it, but we have a lot of discretionary income in Australia, so its not likely to be a large factor in the first few years...if it were left unchecked however, things would get dicey.