The Australian rental market is experiencing a significant resurgence, characterized by a re-acceleration of rental growth occurring alongside the tightest national vacancy rate ever recorded. According to Cotality’s latest Quarterly Rental Review, this renewed strength is driven by fundamental issues of supply scarcity colliding with continued strong demand.

The Re-acceleration of Rental Growth

National dwelling rents, as measured by Cotality’s seasonally adjusted Rental Value Index, saw a notable increase in momentum during the third quarter (Q3). National rents posted a 1.4% rise in Q3, which marked the largest three-month increase since June 2024 and represented a significant uptick from the 1.1% lift recorded in Q2.

This faster pace was also visible in the annual trends. Over the 12 months leading up to September, rents increased by 4.3%. This figure is 90 basis points higher than the four-year low of 3.4% recorded over the year ending in May. Geographically, this re-acceleration was led by Brisbane and Sydney, which saw their pace of annual rental growth rise by 1.7 and 1.5 percentage points respectively compared to June. Adelaide was the sole capital city where growth eased, down 90 basis points.

Record-Low Vacancy as the Catalyst

Cotality Economist Kaytlin Ezzy noted that this increasing momentum is being spurred by a persistent rental supply shortage, directly highlighted by the national record-low vacancy rate seen in September. The national vacancy rate has been pushed to a new record low of 1.47% due to ongoing scarcity in ‘for rent’ listings coupled with sustained rental demand. This rate is less than half the pre-COVID decade average of 3.3%.

Limited supply remains a key catalyst for rising rents. Nationally, the number of rental listings is tracking approximately 25% below the previous five-year average for this time of year. Supply tightness is particularly acute within the unit sector, especially in Sydney, which recorded a new record-low vacancy rate of 1.35% for its unit sector and 1.64% for its broader dwelling rental market in September. Despite investors comprising an elevated portion of home lending over the past two years, this increased investment activity has not translated into additional available rental stock.

Rising Costs and Affordability Gaps

The robust growth has pushed capital city rents to new highs. The median weekly rental value across Australia’s combined capital cities exceeded the $700 mark for the first time in August, settling at $702 per week in September. Regionally, rents remain somewhat more affordable, below the $600 mark, with a typical regional dwelling renting for $591 per week. However, the affordability advantage offered by regional markets has narrowed from $123 in May 2024 to $111 in September, as regions outperformed the capitals through the second half of 2024 and into 2025.

Across the capital cities, Sydney maintains its position as the most expensive rental market, with the typical dwelling renting for $807 per week. Conversely, Hobart holds the title as the country’s most affordable capital, with a median weekly rental value of $584 per week. This recent re-acceleration adds to the significant financial burden on tenants, who have already experienced a 43.8%, or $204 per week, increase in rents nationally over the last five years.

Implications for Inflation and Cash Rates

The recent uptick in rent growth has wider economic implications, potentially complicating the inflation and cash rate outlook. Since “rents paid” constitutes a key component of the Consumer Price Index (CPI), the increased pace of rental value growth seen recently is likely to push inflation higher. This renewed momentum in rents, combined with continued upwards pressure from the cost of new dwellings, could potentially lead to inflation exceeding RBA forecasts, which in turn might keep the cash rate elevated for a longer period. This news is unwelcome not only for tenants struggling with costs, but also for homeowners and landlords servicing mortgages