Regional markets retain rental yield lead over capitals but price growth gap closing

Regional property markets have outperformed the capital city markets over the past year for both capital growth and rental yields.

Those regional areas have outpaced the capitals over the past year (7.9 per cent vs 7.4 per cent) and five years (64.2 per cent vs 47.0 per cent), supported by relative affordability and lifestyle appeal, according to new PropTrack data.

Property investors looking for the cash flow to complement capital growth have also turned to regional areas.

Across most states, the highest rental yields are found in regional areas, fuelled by strong, consistent demand from transient workforces and tight housing supply in mining towns.

“The data shows that Australia’s strongest rental yields come down to two key factors — affordability and consistent rental demand,” Domain’s Chief of Research and Economics, Dr Nicola Powell, said.

“In regional areas, that demand often ties back to major industries like mining, where investors look for higher rental returns to offset the extra risk and slower capital growth that can come with these markets.”

While the highest rental yields are found in Darwin, among regional areas all of the top ten rental yield suburbs are in Western Australia and Queensland.

Highest rental yields in regional areas

Source: Domain

Regional property’s 2026 prospects

Can the national regional property market sustain its impressive growth and dominance over the capital cities?

All regional markets have slowed, except regional Victoria, narrowing the regional market outperformance.

In October, the capital cities drew level with the regions for monthly price growth, with both clocking up 0.6 per cent gains according to PropTrack.

Cotality data had the capitals ahead of the regions, with gains of 1.1 versus 1.0 per cent. Regional WA recorded the strongest rise outside the capitals, with a 1.8 per cent increase in values, followed by regional Queensland up 1.1 per cent and regional New South Wales with a 1.0 per cent lift.

Rental yields are also losing some steam. Gross yields are higher across regional markets, coming in at 4.33 per cent in October — the lowest since October 2022.

Although rents are rising (at a decelerating pace), housing values are rising faster, which has placed renewed downwards pressure on gross rental yields.

At 3.40 per cent, the gross rental yield recorded across capital city dwellings has also reduced to the lowest level since October 2022, according to the latest Cotality data.

Nationally, annual capital growth has lifted above the 30-year average but, according to Eleanor Creagh, Senior Economist at REA Group, stretched affordability remains a handbrake on regional growth, which continues to sit well below the 20–30 per cent pace of past booms.

“Looking ahead, this year’s series of rate cuts, population inflows and the expanded Home Guarantee Scheme will continue to bolster demand,” Ms Creagh said.

“With stock on market constrained and new supply challenged, conditions remain tilted toward sellers.

“The market appears set for further price gains throughout spring and into summer.”

Darwin and regional Northern Territory are recording by far the highest rental yields within the capital cities, averaging 6.4 per cent and 7.9 per cent gross respectively.

Highest rental yields in capital cities

Source: Domain

Cotality’s Research Director, Tim Lawless, said this was a reflection of relatively low purchasing prices compared with rental income.

“With Darwin leading the rate of value growth over the past 12 months, as well as demonstrating the highest gross yields, the total return is far higher than any other capital — a very strong 23.1 per cent,” he said.

“ABS data shows investment housing loans secured have more than doubled over the past financial year across the NT, helping to explain the very strong market conditions.”

Regional real estate hotspots

From 2015 to 2020, regional property markets made only modest gains, but it was a different story in the subsequent five years.

The pandemic sent city dwellers fleeing to the countryside, while a commodity boom created huge property demand in mining centres.

Atom Go Tian, Senior Data Analyst at Ray White Group, described regional Australia’s property boom as being driven by two powerful forces: people escaping expensive city prices for lifestyle benefits, and the boom–bust cycles of commodity markets.

“For the first half of the last decade, price growth between regional and national Australia was relatively similar, with regional Australia performing only 2.4 per cent better than national,” he said.

“The pandemic, however, was a key turning point. From 2020 onwards, house price growth in regional Australia began to diverge from national house price growth, as a combination of affordability-driven lifestyle migration and commodity cycle booms took hold.”

The transformation of regional Australia from 2015–2025 reveals two distinct growth engines rather than a single regional market.

“As regional prices rise closer to city levels, successful regional markets are becoming less about being ‘cheap alternatives’ and more about offering genuine economic opportunities alongside lifestyle benefits.

“Affordability-driven migration powered NSW and Victoria’s early success, then spread to South Australia as those markets became expensive.

“Buyers seeking lifestyle benefits at lower prices have driven sustained demand in coastal and country areas.

“Commodity cycles created the dramatic swings in Queensland and WA’s mining regions.

“These areas declined when prices fell, then surged when global demand for Australia’s resources recovered.”

Regional real estate hotspots

Sydney property investors are among those increasingly turning to regional markets, as sky-high prices force city-dwellers to seek alternatives.

Cotality data shows Sydney’s median house price is $1.52 million, delivering gross investment yields of around 3 per cent. By comparison, regional NSW has a median of $802,000 with average yields of 4.2 per cent, which can be significantly higher in many centres.

Craig Betalli, Senior Broker at Our Broker, said recent interest rate cuts have prompted yield-hungry investors to rethink their strategies and target quality properties in regional NSW.

“Lower borrowing costs have given investors more confidence, and many are asking how they can maximise the benefit of those cuts,” Mr Betalli said.

“Regional markets offer a compelling answer with investors able to get more bang for their buck while tapping into strong rental demand and higher yields.”

Mr Betalli noted that demand is particularly evident in centres such as Bathurst, Young, Lismore, Inverell and Casino, where affordability and lifestyle benefits combine with attractive yields.

“It’s not just experienced investors and self-managed super funds chasing these opportunities. We’re also seeing first-time investors who want to step into the market at an accessible price point.”

In the Northern Rivers region of NSW, investor demand is rising but supply remains constrained, according to Kate Morgan, Principal of Raine & Horne Casino.

Ms Morgan says a typical three-bedroom rental property in Casino sells for about $500,000 and rents for between $480 and $500 per week, highlighting the town’s attractive 5 per cent gross rental yields.

Ms Morgan added that investor demand is particularly strong for four-bedroom, two-bathroom homes, but listings remain scarce.

Duplex developments were also creating cash flow advantages in regional areas where housing supply is low.

Michael Pell, Managing Director, Propell Property, said many the regions were crying out for more housing supply to come online.

“Investors who constructed duplexes could also secure handsome capital growth from their projects in the future.

“Many are opting to construct two attached dwellings on two titles fairly quickly, which not only adds to rental stock but also increases the overall supply of housing in the area, too,” Mr Pell said.

“Depending on the location, investors with budgets of between $800,000 and $2 million can successfully undertake this strategy.”

He identified Moreton Bay, Ipswich and the Gold Coast in Southeast Queensland as well as Northern New South Wales and Geelong in regional Victoria as all having the market fundamentals to underpin future price growth.

Infrastructure challenges

Protecting the positive aspects of regional markets remains a challenge.

There are now 8.5 million people living in regional Australia and that number continues to grow, especially as many are driven out of the capital cities by high property prices.

With that growth comes infrastructure challenges and the need for greater economic diversity to support and employ these expanding regional populations.

Housing Industry Association Chief Executive of Industry and Policy, Simon Croft, said housing policies need to deliver for regional Australia and not just be an adjunct of inner-city policies set in Melbourne, Sydney and Canberra.

“With high house prices and cost-of-living pressures biting, many people are realising the regions can offer the lifestyle they want and the jobs they’re after, minus big city problems, like long commute times, tolls and traffic,” Mr Croft said.

“This shift in population highlights the importance of appropriate investment in the regions to bolster services, skills and infrastructure needed to support a growing population.

“Even more critically, it reinforces the importance of a targeted regional housing plan that includes the volume of supply needed, and provides affordable and diverse housing options.

“Access to shovel-ready land, insufficient investment in enabling infrastructure for new housing estates, and worker shortages in nearly every key construction role — from onsite trades to regional council staff processing planning approvals — are three of the biggest problems being faced.

“Builders must also contend with environmental approvals that can take years to conclude.

“Builders are acutely aware of the massive pent-up demand for new housing in these areas; however, they need the systems around them that facilitate delivery of more homes working for them — currently the opposite is true.”