Investors face tighter tenant budgets as available properties remain near record lows
Australia’s rental market is moving into a slower phase of growth as tenants reach the limits of what they can afford to pay, according to Domain’s December quarter rent report.
The data show that, after several years of rapid, broad-based increases, rent movements are now more uneven across the capital cities and between houses and units. While rents remain elevated in most markets, the pace of quarterly growth has eased, with signs of a plateau in several locations.
Source: Domain
Across the combined capital cities, median house rents rose 2.3% (or $15) over the December quarter, marking the first quarterly rise in a year. Adelaide, Perth and Darwin recorded no change in house rents for the period, yet each remains at a record high level.
Sydney and Canberra house rents increased by $10 over the quarter, while Melbourne was the only capital where house rents stood below their level a year earlier.
Perth and Adelaide, which have posted years of strong rental increases, showed clear signs of slowing. In Perth, house rents have now been unchanged for the longest period in six years, while Adelaide rents were flat for the second consecutive quarter. This may indicate that tenants in these markets are at, or close to, their affordability threshold, even as demand remains firm.
Brisbane was the only capital city to show a clear re-acceleration in rents. House rents there rose 3.1% in the December quarter to $670, the largest quarterly increase among the capitals.
Shift from houses to units
The Domain rental report also points to a continued shift in demand towards units as renters look for comparatively cheaper options. Unit rents are rising faster than house rents in Melbourne, Brisbane, Adelaide, Canberra and Darwin, and the price gap between houses and units has narrowed to historic lows in some cities, including Perth and Brisbane.
This narrowing spread has implications for investor strategy and product advice, with units increasingly absorbing demand from price-sensitive tenants who might previously have targeted houses.
Vacancy rates remain very tight
Vacancy rates have edged higher but remain at very low levels across the capitals. All capital cities still have vacancy rates below 1.7%, indicating that the number of available properties remains well short of tenant demand. From a financing perspective, this continues to support low expected vacancy for investment properties, even as rent growth moderates.
“Australia’s rental market is reaching the point where renters simply can’t afford to pay much more, even though competition remains strong,” said Nicola Powell, chief of research and economics at Domain. “Rents are still at record highs, but household budgets are under pressure. In many areas, renters now need an income of more than $100,000 to rent comfortably.
“The market is no longer moving in one direction. Rent changes now depend heavily on where you live and whether you’re renting a house or a unit. Conditions still favour landlords, with very low vacancy rates across all capital cities.
“However, increased investor activity and ongoing support for first-home buyers could help ease the shortage of rental homes over time, with the market starting to rebalance in 2026.”
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