- National rents increased 0.5% over the September quarter
- This was a marked slowdown from a 1.6% increase in the June quarter and a 2.1% jump in the March quarter
- Cotality said affordability challenges and cost-of-living pressures have taken the heat out of the market
Cotality's latest quarterly Rental Review shows national rents increased 0.5% in the three months to September.
It marks a considerable slowdown on the 1.6% increase in the June quarter and 2.1% jump in the March quarter.
Annual rental growth also slowed to 5.5%, down from 5.9% the previous quarter, with national median rent at $713 a week.
The national vacancy rate also climbed to 2.1% in September, up from 1.7% over the previous two quarters.
It's the country's highest rental vacancy rate since January 2025, although it remains well below the pre-COVID decade average of 3.3%.
Renters rethinking living arrangements
Cotality's research director Tim Lawless said stretched rental affordability and persistent cost-of-living pressures were increasingly influencing rental demand, as renters adjusted household sizes and sought more affordable accommodation.
Over the last five years, unit rents have increased by 44.3%, or $208 per 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."
Cotality's June affordability data showed rental households were dedicating about 34% of their pre-tax income towards rent, the highest level on record.
Mr Lawless said with rental affordability already stretched amid 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.
Slowing population growth also a factor
Mr Lawless also flagged slowing population growth as easing rental demand.
Net overseas migration surged in the post-pandemic period, going from -43,000 in the September quarter of 2020 to a record +165,000 in the March quarter of 2023.
The rate has since normalised, with annual population growth easing to 1.4% in the year to March 2026, below the pre-COVID decade average of 1.6%.
But despite the slowdown in rental demand, supply of housing still remains an issue.
While housing approvals increased and there were near-record levels in investment lending in 2025, Mr Lawless said supply-side factors haven't been enough to offset demand-side barriers.
"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 is likely to be more about demand adjusting than a significant increase in rental supply."
Sydney rents drop as Darwin surges
But rents haven't eased across all capitals, with Sydney recording the only quarterly fall in rents, down 0.4%, its first quarterly drop since December 2024.
Sydney's vacancy rate was 2.5% compared with 1.8% a year earlier.
Darwin recorded the strongest growth nationally, with rents increasing 5.8% over the quarter and 11.6% for the year.
Its median rent increased to $744 a week, third highest of the capital cities behind Sydney ($843 a week) and Perth ($798 a week).
Rents rose 1.7% in Adelaide and 1.3% in Brisbane over the quarter, while Canberra and Hobart remain broadly flat.
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 outstrips the capitals
Regional markets regained the lead in rental growth over the September quarter, with rents rising 0.8%, double the 0.4% increase across the combined capitals.
This also reversed the trend seen in the first half of the year which brought annual growth roughly in line at 5.6% for regional markets and 5.5% across the capitals.
Gross rental yields also rose to 3.85% in the September quarter, up from 3.61% a year earlier, and are at their highest level since August 2019.
Capital city rental yields saw the biggest climb with Darwin recording the highest dwelling yield at 6.52% while Sydney had the lowest at 3.40%.
Rental market to stay tight despite slowdown
But while the outlook is for rental growth to slow further, Mr Lawless expects vacancy rates to remain below average over the coming year.
With the national vacancy rate at 2.1%, it remains well below the long-term average and without a supply response, conditions are likely to 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," he said.
"Rental growth appears to have reached, or is close to, a ceiling."
"Vacancy rates may remain relatively tight, but renters simply have less capacity to absorb the rate of increases we've seen over recent years."
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