Australian rental market shows signs of easing after years of sharp increases

After several years of relentless growth that squeezed household budgets across the country, Australia's rental market is finally showing signs of cooling.

Multiple data sources confirm that while rental prices continue to rise, the pace of growth has significantly slowed, offering a glimmer of hope for tenants who have faced unprecedented increases since the pandemic.

The latest market data reveals that while rental affordability remains challenging, increased property listings and moderating demand are helping to stabilise conditions in many parts of the country, particularly in the largest markets of Sydney and Melbourne.

National rental growth continues to moderate

The national rental market has experienced a marked slowdown in growth rates throughout 2024. According to CoreLogic’s latest Quarterly Rental Review, national rents increased by 4.8% over the year, a significant deceleration from the 8.1% surge recorded in 2023 and the 9.5% jump in 2022.

This moderation was further evidenced in the December quarter results, with national rent values rising just 0.4%, representing the smallest fourth-quarter change since 2018.

REA Group’s data paints a similar picture, reporting that national median rents increased by 6.9% to $620 per week in December 2024, substantially below the nearly 20% growth recorded the previous year.

The CoreLogic analysis indicates the rental market has moved beyond the peak of the recent boom, with affordability constraints emerging as a key factor limiting further growth. Since the onset of COVID, rents have increased by 36.1% nationally, equivalent to a rise of $171 per week, or $8,884 per year at the median level.

The slowdown is also reflected in demand metrics, with REA Group reporting that the median days on market for rental properties increased slightly from 19 to 20 days, while average enquiries per listing decreased from 24.1 to 19.5 nationally.

Capital cities vs regional markets

A notable characteristic of the current rental landscape is the divergence between capital cities and regional markets. CoreLogic data shows that regional areas continued to deliver stronger rental growth compared to major cities, with regional rents up 6.2% over the year versus 4.3% in capital cities.

Similarly, REA Group reported that regional rents climbed 10% to reach $550 per week, outpacing capital cities’ more modest 6.7% growth to $640. This trend suggests that affordability pressures may be driving some renters away from urban centers.

Within the capital cities, performance varied significantly:

• Sydney and Melbourne, Australia’s largest rental markets, have led the deceleration, with CoreLogic reporting annual increases of just 3.0% and 4.1% respectively in 2024, down from 9.9% and 11.0% in 2023. REA data shows both cities recorded no changes in the December quarter, maintaining median rents of $730 and $570.
• Perth emerged as the standout performer, with CoreLogic reporting an 8.1% annual increase, while REA Group placed Perth’s growth even higher at 8.3%. This strong performance has pushed Perth’s median weekly rent to $650, ahead of Brisbane’s $630.
• Adelaide has also shown robust growth, with rents increasing 7.4% according to REA Group, pushing its median weekly rent to $580, now surpassing Melbourne’s $570.
• Hobart maintained its position as the country’s most affordable rental capital, with CoreLogic reporting a median weekly rental value of $554, making it the only capital with rents below $600 per week.

Market dynamics driving the shift

Several interconnected factors appear to be contributing to the easing rental conditions across Australia.

Affordability ceiling

Perhaps the most significant factor constraining further rental growth is the simple reality that many tenants have reached their financial limits. CoreLogic data indicates that as of September 2024, renters were spending approximately 33.0% of annual pre-tax income to service the median rent, the highest proportion since recording began in 2006.

Economic analysts observe that after several years of substantial increases, many rental markets have reached an affordability ceiling that limits further growth. This affordability challenge has prompted behavioral changes, with many renters forming larger households to share costs.

A Melbourne renter interviewed in recent reporting exemplifies this challenge, noting that paying down a mortgage on a unit was actually more manageable than his current rental situation after experiencing a 4.6% rent increase that pushed his housing costs close to 30% of his income.

Supply and demand rebalancing

The market is also seeing early signs of improving supply. REA Group reported a 4.6% increase in new rental listings in the second half of 2024 compared to the same period in 2023, representing the most active second half since 2020.

On the supply side, increased investor activity appears to be adding to rental stock. CoreLogic notes that the annual value of new investor lending increased by 26.3% over the year to September 2024, suggesting a potential net increase in rental properties.

Australian Bureau of Statistics data confirms this trend, showing investor lending surged by 25.2% from September 2023 to September 2024, while first-home buyer loans rose by 8%, potentially reducing rental demand as some tenants transition to homeownership.

Migration patterns

Changing migration patterns have also influenced rental markets. The easing in net overseas migration has been identified as a factor contributing to softer rental demand, with overseas migration levels expected to normalize around pre-Covid decade averages by the 2026-27 financial year.

The impact of migration has varied across cities. Sydney and Melbourne, which typically attract the highest proportion of overseas migrants, have experienced more significant deceleration as migration levels ease.

Conversely, Perth’s exceptional performance has been partly attributed to strong interstate migration, with significant numbers of people relocating to Western Australia amid limited housing stock, creating continued upward pressure on rents.

Houses vs units

The rental market is also showing interesting divergences between property types. CoreLogic data reveals that houses recorded both stronger quarterly (0.6%) and annual rent rises (5.0%) compared to the unit sector (-0.2% and 4.2%, respectively).

This trend appears to be driven by changing household compositions, with analysts noting a move toward larger households across different property types. As renters form larger share households to manage costs, demand for houses with multiple bedrooms has increased relative to apartments.

PropTrack’s Market Insights Report highlighted several regions where unit rents actually decreased, including Mandurah, Melbourne - Inner East, and South Australia - South East, which witnessed quarterly rent reductions of 3.8%, 3.4%, and 3.1% respectively, representing weekly decreases of $10-$20.

Rental yields and investment implications

With dwelling values up 4.9% and rental values up 4.8% over 2024, national gross rental yields held steady at 3.7% over the year, according to CoreLogic. While this remains around 50 basis points above the recent low recorded in January 2022 (3.2%), it is still below the pre-COVID decade average of 4.2%.

The yield landscape has shifted notably in some cities. Melbourne’s gross rental yield rose 29 basis points over the year to 3.71%, while double-digit value growth in Brisbane (11.2%) and Adelaide (13.1%) saw rental yields decline by 31 and 21 basis points to 3.63% and 3.66% respectively.

This created an unusual situation where gross rental yields in Brisbane and Adelaide dropped below Melbourne for the first time since CoreLogic began its rental reports in 2008. Property analysts note that yields are typically weaker in Melbourne and Sydney due to historically high house prices, but strong value growth in Brisbane and Adelaide has reversed this pattern.

Outlook for 2025

While rental conditions are easing, experts caution that the market remains significantly tighter than pre-pandemic levels. REA Group analysis indicates that despite some easing of rental pressures, the market remains considerably more constrained than before the pandemic, with availability still limited in many areas.

Analysts generally expect rental growth to continue moderating in 2025, potentially approaching the pre-pandemic average of around 2% annual growth.

CoreLogic economists anticipate that the annual pace of growth will continue to pull back, with some capital cities already approaching pre-COVID levels of around 3%. They suggest that in some markets, rental values might even decline as affordability constraints force more people out of certain price brackets.

Economic analysts from REA Group predict that national availability will continue to improve in 2025, with rents rising but at a slower rate than 2024. However, they express ongoing concern for markets where rents are growing faster than incomes, particularly in Perth and Adelaide.

Relief on the horizon

After years of sharp increases that have stretched household budgets to their limits, Australia’s rental market is showing clear signs of moderation. While conditions remain challenging for many tenants, the combination of increased supply, changing demand patterns, and the simple reality of affordability constraints are working together to slow rental growth.

For renters who have weathered the storm of post-pandemic price surges, this cooling trend offers hope that the worst may be over. However, with rental affordability still at record lows and prices continuing to rise (albeit more slowly), the market remains far from balanced.

As migration patterns normalise and investor activity increases rental stock, the outlook for 2025 suggests further moderation, potentially bringing rental growth back in line with historical norms. For Australia’s 2.5 million renter households, this would represent welcome relief after years of unprecedented pressure.

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