Affordability and cost-of-living pressures have taken the heat out of Australia’s rental market, driving a marked slowdown in rental growth during the September quarter as vacancy rates rose to their highest level since January 2025.
Cotality’s latest Quarterly Rental Review shows national rents increased 0.5% in the three months to September, a marked slowdown on the 1.6% increase in the June quarter and 2.1% in the March quarter. Annual rental growth also eased from 5.9% to 5.5%, taking the national median dwelling rent to $713 a week.
The national vacancy rate increased from 1.7% in the March and June quarters to 2.1% in September, its highest level since January 2025, although it remains well below the pre-COVID decade average of 3.3%.
Cotality Research Director Tim Lawless said stretched rental affordability and persistent cost-of-living pressures were increasingly influencing demand, as renters adjusted household size and sought more affordable accommodation.Over the last five years unit rents have increased 44.3%, or $208 a week, compared with 36.6% for houses, equivalent to $195 a week.
“Rental growth was strongest through the pandemic when average household sizes fell sharply as people sought additional space, then experienced a second wind as international borders reopened and rental demand increased without a commensurate uplift in rental supply,” Mr Lawless said.
“The consequence is that renters are reaching an affordability ceiling. Our June affordability data showed rental households were dedicating about 34% of their pre-tax income towards rent, the highest level on record.
“With rental affordability so stretched and broader cost-of-living pressures, rental demand is likely to be restructuring as people form larger households, stay in the family home for longer or look further afield for more affordable accommodation.”
Vacancy rates rise as rental demand adjusts
Slower population growth has also contributed to the change in rental demand after national vacancy rates have trended higher since reaching an equal record low of 1.5% in February, Mr Lawless said.
Net overseas migration surged from approximately -43,000 in the September quarter of 2020 to a record 165,000 in the March quarter of 2023 as Australia emerged from the pandemic. The rate of net overseas migration has since normalised, while annual population growth eased to 1.4% in the year to March 2026, below the pre-COVID decade average of 1.6%.
Despite an increase in housing approvals and near record levels of investment lending in 2025, Mr Lawless said these supply side factors haven’t been enough to offset demand side barriers, leading to the recent easing in rental conditions.
“Dwelling completions are an important source of new housing, some of which ultimately flows through to the rental market, but completions have been relatively flat for an extended period,” he said.
“Even with the high levels of investor lending throughout much of 2025, supply constraints persist, so the recent slowdown in rental growth and rise in vacancies is likely to be more about demand adjusting than a significant increase in rental supply.”
Sydney rents fall as Darwin surges
Conditions varied substantially across the capitals, with Sydney recording the only quarterly decline in dwelling rents, down 0.4%, its first quarterly fall since December 2024. Sydney recorded a vacancy rate of 2.5%, compared with 1.8% a year earlier.
Despite the decline, Sydney is Australia’s most expensive rental capital with a median rent of $843 a week, with houses in the harbourside suburb of Vaucluse the most expensive in the country renting for $2,362 a week.
Darwin recorded the strongest growth nationally, with rents increasing 5.8% over the quarter and 11.6% for the year. Its median dwelling rent increased to $774 a week, third behind Sydney and Perth at $798.
Rents rose 1.7% in Adelaide and 1.3% in Brisbane for the period, while Canberra and Hobart were broadly flat at 0.1% and 0.2% respectively. Hobart’s vacancy rate has more than doubled to 3.1%, up from 1.3% a year earlier, while Adelaide remains Australia’s tightest rental market with a vacancy rate of 1.4%.
Regional rental growth overtakes the capitals
Regional markets regained the lead in rental growth during the September quarter, with rents rising 0.8%, twice the 0.4% increase across the combined capitals and reversing the trend recorded during the first half of the year.
Annual growth was more closely aligned at 5.6% across regional markets and 5.5% across the capitals.
House rents also outperformed units nationally, increasing 0.6% over the quarter compared with 0.3% for units.
Over the year, house rents increased 5.8% and unit rents 4.9%, with unit rents declining in Sydney, Canberra and Hobart over the quarter.
Rental yields reach highest level since 2019
Gross rental yields rose to 3.85% nationally in September, up from 3.61% a year earlier and are at the highest level since August 2019.
Combined capital city yields increased from 3.40% to 3.70% over the year, while regional yields were unchanged at 4.31%. Darwin continued to record the highest gross dwelling yield at 6.52%, while Sydney had the lowest at 3.40%.
Even with higher gross rental yields, new investors to the market will find it hard to find an investment property with a positive, or even neutral cash flow outcome, due to high holding costs. Mortgage rates for new investor loans are averaging in the mid-to-high 6% range. Additionally, higher labour and materials costs flow through to an increase in maintenance, alongside higher insurances, strata fees and council rates.
Rental market to stay tight despite slower growth
While the outlook is for rental growth to slow further, which could restrict further yield gains, Mr Lawless expects vacancy rates to remain below average over the coming year.
At 2.1%, he said the national vacancy rate remains well below the long-term average, and without much of a supply response, conditions would remain tight for tenants.
“Rents have risen substantially faster than incomes over the past six years, while cost-of-living pressures are likely to remain elevated. Rental growth appears to have reached, or is close to, a ceiling,” he said.
“Vacancy rates may remain relatively tight, but renters simply have less capacity to absorb the rate of increases we’ve seen over recent years.”
