Australia's rental market continues to exhibit high demand and significant affordability challenges, with national rent prices increasing, while some capital cities show signs of slowing growth. Data indicates a record-high proportion of household income allocated to rent and persistently low vacancy rates across most regions. The market demonstrates varied trends depending on location and property type, with experts offering differing perspectives on future adjustments and contributing factors.
Market Overview and Affordability Concerns
The Australian rental market is characterized by high demand, exemplified by observations of prospective renters queueing for available properties, such as a one-bedroom apartment in Surry Hills, Sydney, listed at $885 per week. This demand occurs alongside growing concerns regarding affordability.
As of September, households allocated an average of 33.4 percent of their pre-tax income to rent, marking a record high. This figure exceeds the property management guideline of 30 percent, which is typically recommended to mitigate housing stress for tenants. Stacey Holt of Real Estate Excellence stated that the market is approaching a point where price increases may become unsustainable for tenants, suggesting this could lead to reduced demand and a future adjustment of rental prices. Holt also highlighted instances where tenants allocated 60 to 70 percent of their income to rent, identifying this as a risk for both renters and property investors, attributing current market conditions to long-term government policy and systemic failures. Property portal Domain reported that an income exceeding $100,000 is often necessary to cover weekly household expenses due to current rental costs.
Rental Price Trends
National and Capital City Performance:
Recent data from Cotality, published on Wednesday, indicates a 5.2 percent increase in national rent prices over the past year, compared to 4.8 percent in the preceding year. This growth contributes to a 42.9 percent surge in the national rental index since December 2020, with the national median rent reaching $681 per week, an increase of approximately $204 per week over five years. Cotality's Research Director, Tim Lawless, noted that rising rental values impact inflation and the cash rate outlook due to their weight in the Consumer Price Index (CPI).
Property portal Domain's December Quarter Rent Report indicated a "speed limit" and "rebalancing" phase as tenants approach affordability limits.
- House Rents: Combined capital cities experienced a 2.3 percent, or $15, increase in house rents during the December quarter. Brisbane led this increase with 3.1 percent, followed by Hobart at 1.7 percent, and Canberra at 1.4 percent. Over the 12 months ending December, Hobart recorded the largest national increase at 7.1 percent, with Brisbane at 6.3 percent and Perth at 4.5 percent. Melbourne was the only capital city to observe an annual reduction in house rents, with a 1.7 percent fall, setting its median at $580 per week. Sydney's median house rental asking price increased by 1.3 percent in the December quarter, reaching $800 per week.
- Unit Rents: The national median rental asking price for home units remained unchanged in the December quarter, despite most cities reaching record levels, with an overall 3.2 percent annual increase. This contrasts with house rent trends in several cities, as units have shown stronger rent growth compared to houses in Melbourne, Brisbane, Adelaide, Canberra, and Darwin. Quarterly increases for units were led by Canberra (3.6 percent), Brisbane (3.2 percent), and Darwin (3 percent). Annually, Darwin (8.6 percent) and Brisbane (8.3 percent) reported substantial increases. Hobart experienced a 1 percent fall in unit rents since December 2024. Sydney units commanded $750 per week in the December quarter. The average median rent in Australian capital cities is $650 per week, an increase of $20 from 12 months prior, and $15 less than houses.
Sydney maintains the highest median dwelling rents among capital cities, averaging $817 per week, according to Cotality. Due to higher house rental costs, there has been an increase in renters opting for units in search of more affordable options. Regional markets experienced a 6.2 percent rent increase, while combined capitals saw a 4.8 percent increase over the past year (Cotality data).
Vacancy Rates and Supply
National rental listings were approximately 11 percent lower than a year ago during the December quarter and 17 percent below the five-year average, according to Cotality. The national vacancy rate has decreased to 1.7 percent, which is below the pre-COVID decade average of 3.3 percent.
Key capital city and regional vacancy rates in 2025/December Quarter, according to Domain, included:
- Hobart: 0.3 percent (the tightest market).
- Perth: 0.5 percent.
- Adelaide: 0.6 percent.
- Darwin: 0.7 percent.
- Brisbane: 0.9 percent.
- Regional Australia: 0.9 percent.
Capital city rental vacancy rates saw an improvement of 0.3 percent, reaching 1.1 percent, primarily driven by Sydney's rise to 1.4 percent. This improvement is attributed to seasonal factors, with expectations for vacancy rates to tighten again during the new year period.
Market Outlook
Domain suggests that the current flatlining of rents in some areas indicates that tenants have reached their payment capacity. Despite ongoing challenges, Domain expresses optimism that the shortage of rental homes may ease in the coming year and beyond. While conditions continue to favor landlords due to low vacancy rates, increased investor activity and ongoing support for first-home buyers could contribute to alleviating the rental home shortage over time, with the market potentially rebalancing in 2026. The Australian government's 5 percent deposit scheme began on October 1st, 2025. Domain also anticipates at least one interest rate increase mid-year, which could lead to higher mortgage interest rates, making home buying more expensive for first homebuyers and potentially increasing pressure on rents.