Australia’s rental market slowdown despite record-high prices and policy changes

Consensus Summary

Australia’s rental market is experiencing an unexpected slowdown, with prices stagnating or even declining in some cities despite record-high rents. Both ABC and 7NEWS report that rental growth has decelerated sharply, with the national median dwelling rent hitting a record high of $713 per week. In the September quarter, rents grew by just 0.5 per cent, down from 1.6 per cent in the June quarter and 2.1 per cent in the three months to March. The national vacancy rate has risen to 1 per cent, up from a year ago, signaling a loosening of the previously tight market. Sydney saw rents fall by $5 in the past three months, while Melbourne, Brisbane, Perth, and Adelaide all reported flatlined rents, marking a stark shift from earlier trends.

The slowdown reflects broader affordability pressures, as rents have risen far faster than incomes over the past six years, according to both sources. Experts attribute the deceleration to tenants reaching their financial limits, with many adjusting their living arrangements—such as renting in less ideal locations or sharing housing—to cope. The post-pandemic migration spike had previously tightened the market, but vacancy rates have since rebounded, particularly in Sydney, where the rate reached 2.5 per cent in September, up from 1.8 per cent a year earlier. This suggests that while demand remains high, the supply constraints that once drove rapid rent increases are easing, at least temporarily.

Key figures in the debate include Domain’s chief residential economist, Nicola Powell, who noted that tenants’ ability to absorb further rent hikes is the primary constraint on growth. She described the current market as a ‘disconnect’ between vacancy rates and rental increases, with landlords struggling to raise prices despite low supply. Meanwhile, Cameron Kusher of Kusher Consulting highlighted how renters are making trade-offs, such as moving to cheaper areas or delaying leaving the family home. On the policy front, One Nation’s proposal to cut 750,000 temporary visas over three years aims to reduce rental inflation by 6.5 per cent, though economists remain skeptical about its effectiveness given the long-term rise in rents over recent years.

The two sources diverge slightly on specific details, such as the extent of rent declines in Sydney and the timing of vacancy rate changes. ABC emphasizes the dollar amounts of rent drops in Sydney and Canberra, while 7NEWS focuses on percentage changes and broader vacancy trends. Additionally, 7NEWS references historical comparisons, such as the 1980s when negative gearing was briefly abolished, to argue that policy changes may not uniformly impact rents across all cities. The shadow treasurer’s warning about rising rents contrasts with economist Saul Eslake’s view that past policy shifts had limited effects outside already tight markets like Sydney and Perth.

Despite the slowdown, both articles suggest that the rental market remains under significant strain, with affordability at a breaking point for many tenants. The budget’s changes to property investor tax breaks were expected to drive rents higher, but their full impact has yet to materialize. While vacancy rates are improving, they remain relatively tight, and experts warn that renters have little capacity to absorb further increases. The unresolved question is whether the current slowdown is a temporary adjustment or the beginning of a longer-term shift in the rental market’s dynamics, particularly as migration and investment policies continue to evolve.