Rental growth to slow despite record-tight vacancy rates

Domain chief resident economist Nicola Powell said tight supply alone was no longer enough to drive rapid rent growth.

“Even in markets where vacancy is extremely low, growth is moderating or uneven, reflecting renters reaching affordability ceilings, greater price sensitivity or a shift in behaviour rather than a drop in demand,” Powell said.

She said that growth was no longer broad-based, with some markets rising, while others remained flat despite declining supply levels.

Domain’s data showed Perth was the strongest-performing capital over the March quarter, recording median asking prices for houses rising by 5.7 per cent to $740 per week and for units by 5.3 per cent to $695 per week.

The data showed that Perth’s rental market was strengthened by a vacancy rate of just 0.3 per cent.

On the east coast, Sydney’s house and unit rents both held firmly at their current record high over the quarter, with the median house costing renters $800 per week and the median unit $750.

Powell said that with Sydney’s vacancy rate at 0.8 per cent, it was unusual for rents to hold flat, underscoring how constrained supply could be, even when affordability limits are reached.

“In Sydney, rents are already among the highest in the country, and despite vacancy rates remaining very tight, tenants simply can’t absorb further increases,” Powell said.

“Demand hasn’t disappeared – it is resistance to higher rents that has stopped growth entirely.”

The data showed that Melbourne was the only capital city with house rents below record asking price, with a 1.7 per cent increase reversing most of the 2025 decline, and a weekly rent of $590, just $5 below its previous 2024 peak.

Additionally, Melbourne was the only capital city where unit rents exceeded house rents, with rents up 4.3 per cent, pushing the weekly median to $600.

“While the vacancy rate is expected to lift seasonally, the price response remains inconsistent – suggesting tight conditions but not a sustained acceleration of rents – yet,” Powell said.

Additionally, Powell said the market had been building towards reaching peak affordability for quite some time.

“Three months ago, we warned that renters were running out of capacity to absorb higher rents,” Powell said.

“Even during the usually stronger March quarter, this month’s data shows that the affordability ceiling has now been reached.”

Powell said rental price growth was more likely to moderate rather than reverse, with little room to flex in either direction as demand continues to outweigh supply.

“That puts a floor under rents. In most cases, rents stabilise or grow modestly as the market recalibrates to what tenants can realistically pay,” she said.

She said that despite affordability being reached and growth set to moderate, both renters’ and investors’ positions would improve throughout 2026.

Powell said that slower rent growth and more stable asking prices would improve conditions for renters, while investors would still be supported by low vacancy rates and elevated yields as the market began to normalise.

“Overall, we’re moving into a more balanced market, but not an easy one, particularly in cities where affordability has already been pushed to its limits,” Powell concluded.

Share