Rents hit record highs with no end to increases in sight

Australian rents have hit record highs on the back of the sharpest annual rise in two years and an acceleration in capital city prices.

With vacancy rates remaining near record lows nationally and housing supply continuing to lag demand, rental market conditions are likely to remain challenging for tenants throughout the remainder of 2026.

A swathe of data released Thursday (9 July) all pointed in one direction – an overheated rental market that appears to be on a one-way trajectory.

Renters in Sydney have been the hardest hit, according to Domain’s latest Quarterly Rent Report, recording the largest quarterly rent increase in four years in what is the most expensive rental market in the country. Quarterly growth there was roughly five times faster than a year ago, lifting annual rental growth to a two-year high of 7.6 per cent ($60).

Like the property market, which has been powered by the mid-sized capitals, the rental market has largely divided into a two-speed one.

But the cities growing the fastest differ markedly, with Sydney, Brisbane, Canberra and Darwin the ones accelerating while growth is moderating in Melbourne, Perth, Adelaide and Hobart.

Darwin has overtaken Perth as Australia’s second most expensive rental market for houses.

This rapid acceleration in rents, well above incomes, has resulted in a worsening in rental affordability measures.

According to realestate.com.au, over the June quarter, the national median weekly advertised rent grew 3.1 per cent to sit at $670 - a new high. Annually, this pushed national median rents up 6.4 per cent over the year. 

Nationally, on average, renters are paying $12,480 more in June 2026, compared to five years ago. 

In March 2026, around one-third of the median household’s income was going towards rent, compared with around 27 per cent of income in March 2021, according to Cotality’s Quarterly Rental Review.

Domain’s report highlighted the varying impacts of the two-speed rental market.

“Vacancy rates remain near historic lows nationally, but in Melbourne, Adelaide, Perth and Hobart, where growth has eased this quarter, affordability increasingly looks like the binding constraint on further increases,” the report noted.

“Sydney, Darwin, Brisbane and Canberra show the opposite pattern: growth accelerating despite already-tight conditions, suggesting landlords there still have room to push rents further.”

Landlords appear to have wasted no time lifting rents in the wake of recent Federal Government reforms around negative gearing, capital gains tax discounts and other housing policies.

Domain pointed out that the timing of the acceleration is notable.

“As greater clarity emerged around proposed housing investment policy changes during April and May, the data suggest landlords moved quickly to lift asking rents where market conditions allowed.

“Rather than gradually feeding through over time, rental increases were brought forward, suggesting owners are positioning for tighter supply conditions and adjusting pricing expectations accordingly.

“For now, the impact is showing up more in landlord sentiment and pricing behaviour than in a broad deterioration in rental availability.

“Larger structural effects are likely to emerge over time as investor behaviour adjusts more materially to the new settings,” the report noted.

Regional, units slow down

Regional rents held flat over the quarter but grew 5.3 per cent annually, according to realestate.com.au. Growth was slower than capital city rents and a sign that the acceleration has somewhat eased outside the capital cities.

Nationally, house rents rose more quickly than unit rents over the quarter, up 2.9 per cent across capital cities and 1.7 per cent in regional areas.

Luc Redman, Economist, REA Group, said national median rents reached a new high in the June quarter, despite a small increase in the rental vacancy rate over the same period.

“The May Federal Budget, which announced sweeping changes to investor tax settings, occurred in the middle of the quarter, so the full impact on the rental market is yet to be seen,” he said.

“While the vacancy rate has edged higher, the expected decrease in investor demand due to the budget’s tax changes could slow the pace of new supply, putting further pressure on rents.

“Rental prices for units are lower across most markets except for Melbourne, where rent for a unit is more expensive than for a house, suggesting renters prefer location over property type.”

Supply restraints quash rent fall hopes

For rents to fall, more properties need to be leased and built.

That appears a forlorn hope for renters.

Home building had good momentum heading into 2026, picking up on the back of declining interest rates, low unemployment and existing shortages of housing across the country. Despite still falling short of target, housing commencements were 12.0 per cent greater than the 176,230 recorded a year earlier.

But HIA Senior Economist, Tom Devitt, said it was still not enough.

“HIA estimates 250,000 home builds each year are required on a sustained basis to meet these demands and start addressing the pre-existing shortage of housing across the country.

“This trajectory will not be sufficient to meet the Housing Accord Target, and Australia’s housing needs are even greater than this.”

Mr Devitt pointed out the locations faring better or worse than needed.

“Jurisdictions like Western Australia, Queensland, South Australia and the Northern Territory have been leading the national improvement in home building volumes and have a significant pipeline of new sales ready to commence.

“This will help smooth out on-the-ground activity through this year’s volatility.

“The southeastern state and territory recoveries have been delayed and are more vulnerable but as long as recent disruptions are short-lived, strong population growth and tight labour market fundamentals should support activity here too.”

Cotality Australia’s Head of Research Gerard Burg said the rapid acceleration of rents is driving severe rental affordability constraints and owed much to this lack of supply.

“We are seeing a profound shift in affordability across the market.

“While quarterly rental growth has eased slightly, the underlying supply deficit means conditions remain incredibly challenging for tenants.

“We are approaching a threshold where rental affordability acts as an increasing constraint on further growth, particularly in regional areas where lower median incomes mean households are spending upwards of 35 per cent of their income on rent.”