Rental pressures ease as outlook remains bleak

Australia’s rental market has seen some relative improvement over the past 12 months.

National rental vacancies increased by 0.08 percentage points to 1.37% in the 12 months to May, providing some relief for renters. However, vacancy rates still lag well below pre-pandemic levels, when national rental vacancies remained above 2%.

How did we get here?

Prior to the pandemic, the general migration trend in Australia and much of the Western world was for people to move from regional and rural areas closer to urban environments and major cities.

That was the draw of higher-paying jobs, bigger opportunities and more amenities than smaller areas could provide.

During that time, vacancy rates moved in a relatively synchronised manner across regional areas and capital cities.

Asking rents in regional Australia were significantly lower than in capital cities.

That shifted in the pandemic. Regions that were previously highly affordable had a significant jump in demand from internal migrants, as work went online and household preferences shifted.

That forced the regional Australia vacancy rate to drop sharply in 2020, reaching a low of 0.8% in November 2021, while capital cities' vacancy rates had peaked at over 3% and remained elevated above regional vacancies until late in 2022.

Because of this, rents followed suit, and for a brief period, the median rent in Australia’s capital cities was the same as that in regional Australia at $450 per week.

Population growth accelerated, driving demand again in the capital cities and converging them back to the correlated vacancy-rate pattern, while restoring the rental price gap between capitals and regions.

Recently, rental relief has improved across the capitals and regions.

Capital city vacancy rates have improved to 1.34%, near the level at the start of 2026, likely due to seasonality.

Vacancy rates are expected to remain low while demand for housing outstrips supply.

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However, evidence of sustained improvement at the national level has come from the regional markets.

Vacancy rates since October 2025 in regional Australia have climbed from 1.04% to 1.45%.

That has meant that for the first time since the middle of 2024, regional vacancies are higher than in the capitals.

This will help regional renters in the short term, as the rate of rental price growth is likely to be slower than the rate seen over the past 12 months.

That slower pace of rent growth will still likely feel compounded, as prices are rising from a higher base.

This is particularly true in areas where wages haven’t necessarily kept pace with prices, and financial stress has increased.

But that slight relief may be short-lived, as the driver of rental stress in Australia is ultimately a lack of supply, which has not significantly improved.

Where to from here?

Structural market forces of supply and demand will continue to drive rental pressures felt by households. That will continue as long as demand outstrips supply, particularly in areas where people want to live.

Whilst there has been some progress on supply-side reforms, without sufficient action low vacancy rates will continue, and rental prices will rise.

The federal government’s budget will likely have a marginally compounded impact on the rental market.

Modelling and the literature suggest that, in the long term, rental prices will be around 0.5% higher due to the policy changes, while short-term impacts are likely to be small.

However, these effects are unlikely to be felt uniformly, as areas with lower vacancy rates will likely face greater upward pressure on rental prices from policy changes.

That's because the policies will likely lead to fewer dwelling completions and thereby lower supply, pushing prices up.