We’re currently facing a rental crisis with historically low vacancy rates and soaring rents, but new data suggests price growth is cooling.

Domain’s latest quarterly Rent Report reveals that house and unit rents across the combined capitals have reached a new record high of $515 and $460 respectively, with the country seeing its strongest annual growth in 14 years.

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This quarter has seen the longest stretch of continuous rental price growth on record as house rents rise for the fifth consecutive quarter and unit rents for the fourth.

Combined capital city house rents are up by 3% over the quarter, and 12% annually, while unit rents are up by 3.4% over the quarter, and 12.2% annually.

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The strength of unit rent price growth over the quarter – being at a faster pace than house rents is due to the affordability pressures of renting a house shifting demand to units – a key trend of 2022, the report explains.

Dr Nicola Powell, Domain’s Chief of Economics and Research, explained that the numbers we’re seeing are a result of a combination of high property prices which are putting buyers off and forcing them to remain in the rental market for longer.

At the same time, she adds, higher home loan costs are being passed onto tenants, weaker investment activity throughout 2019-20, fewer building completions, greater household formation, investors cashing in on the recent price boom, and rental demand being boosted by the return of international students and overseas migration is also supporting record high rental prices.

But the data also shows the tide may be turning.

Domain also found that the pace of quarterly growth is easing and vacancy rates is stabilising at 1% for the fourth consecutive month in a row, giving a renewed hope to renters.

Despite the record high rent prices across the nation, Domain’s data also suggests the rental market is beginning to cool.

“While it is still a very competitive market, increased investment activity has helped to ease some pressure on tenants with national vacancy rates holding for the fourth month and the choice of rentals nudging higher over June,” Powell said.

“This, together with new first home buyer government incentives such as ‘Help to Buy’, has the potential to assist the transition of more tenants becoming homeowners, easing some of the demand pressures that the rental market is currently facing.”

Let’s delve deeper into the numbers for each state.

Sydney rental market

House rent prices in Sydney jumped by 3.3% over the June quarter to a new record high of $620 a week, which is the steepest annual increase since 2009, at 12.7%.

Meanwhile, unit rents continue to rise faster than houses, narrowing the gap between the two, after surging by 5% over the June quarter to $525 a week – the steepest annual increase in 14 years, at 11.7%.

In fact, the data shows it’s the first time in 14 years that unit rents have risen at the current annual pace and have outpaced house rents in the first half of 2022.

“Unit rents are now higher than at the start of the pandemic and they are on track to surpass the 2018 record high next quarter if they continue at the current growth rate,” Domain said in its report.

Sydney’s strong rental market continues to be supported by its record low vacancy rate of 1.4%, with the viability of rentals halving since June 2019 creating surplus demand in an already constricted market.

But, on a positive note, the report points out that increased investment activity has helped to ease some pressure on tenants with vacancy rates and the choice of rentals nudged higher over June.

“This, together with the new first home buyer incentives should assist the transition of more tenants to become homeowners, easing some of the demand pressures,” the report said.

House rent prices in Melbourne increased 2.2% over the quarter to a new record high of $460 a week.

Despite the rise, Melbourne still remains Australia’s most affordable city to rent a house and the value gap has widened as rents rise faster in other capital cities.

Meanwhile in Melbourne’s unit rental market prices surged 5.1% over the quarter to $410 a week –  the second steepest quarterly rise on record and the sharpest annual increase since 2008, at 10.8%.

Inner Melbourne unit rents led price gains after surging $45 over the quarter but they remain $45 below the March 2020 record high.

This is because the lower affordability barriers of unit rents are attractive for tenants and continue to support a price recovery.

And if Melbourne unit rents continue to rise at the current pace, they are on track to set a new record high next quarter, the report claims.




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