Are we witnessing a turning point in Australia's rental market? After years of relentless price hikes, some capital cities are hitting a 'speed limit,' with rental growth either stalling or even declining. According to Domain's December Quarter Rent Report, the market is beginning to rebalance as tenants reach their financial limits. But what does this mean for renters and the overall housing landscape? Let's dive in.
Over the past three months, house rental asking prices in Melbourne, Adelaide, Perth, and Darwin have either decreased or remained stagnant. However, the combined capital cities still saw a modest rise of 2.3%, or $15, over the quarter. Brisbane, Hobart, and Canberra led the charge with increases of 3.1%, 1.7%, and 1.4%, respectively.
Looking at the yearly figures, Hobart experienced the most significant jump in house rents, a staggering 7.1% increase. Brisbane followed closely at 6.3%, and Perth at 4.5%. Melbourne was the only capital city to see a decrease, with a 1.7% fall. The median house rent in Melbourne is now at $580, the lowest among all capital cities, a decrease of $15 compared to its peak in September 2024.
But here's where it gets controversial... The median rental asking price for home units remained flat nationally in the December quarter, despite most cities already being at record levels, with a 3.2% annual spike. This mixed trend reflects the increasing unaffordability of Australia's rental market in recent years. Domain suggests that in many areas, an income exceeding $100,000 is necessary to cover weekly household expenses due to high rents.
Sydney stands out with its exorbitant rents, with the median asking price for houses reaching $800 per week and units at $750. Due to the high cost of renting houses, there was a surge in Australians opting for home units in 2025, seeking more affordable options. However, unit rents have grown more rapidly than houses in Melbourne, Brisbane, Adelaide, Canberra, and Darwin.
Canberra (3.6% rise), Brisbane (3.2%), and Darwin (3%) saw the most significant increases in median unit rental prices. Darwin (8.6%) and Brisbane (8.3%) also reported impressive yearly rental increases, with every capital city except Hobart reporting record levels. The average median rent in Australian capital cities is now $650 per week, only $15 less than houses.
And this is the part most people miss... The rental market's tightest spot in 2025 was Hobart, with a rental vacancy rate of just 0.3%. Perth (0.5%), Adelaide (0.6%), Darwin (0.7%), and Brisbane (0.9%) also had low vacancy rates. Darwin experienced the most significant drop in availability, decreasing by 0.6%. Regional Australia continues to be a challenging place to find rental accommodation, with a vacancy rate of only 0.9%, though this was at a more dire 0.7% just three months earlier.
The question is, what's driving these shifts?
According to Domain's Chief of Research and Economics, Nicola Powell, the rental market is hitting a 'speed limit' due to affordability constraints. She anticipates a slowdown in further rental price increases, potentially shaping the market's trajectory throughout 2026. Sydney's median rental asking price for houses rose by 1.3% in the December quarter to $800 a week, with units demanding $750.
Capital city rental vacancy rates improved by 0.3% to 1.1%, driven by Sydney's increase of 0.5% to 1.4%. Powell noted that seasonal factors influence this and that vacancy rates would tighten again in the new year. She emphasized that the market is far from a rental crisis resolution, despite rents starting to stabilize, as the flatlining reflects tenants' inability to pay more.
Despite the challenges, Domain remains optimistic about easing rental shortages in the future. Powell highlighted that low vacancy rates still favor landlords across all capital cities. However, increased investor activity and ongoing support for first-home buyers could help alleviate the rental shortage over time, with the market starting to rebalance in 2026.
The Australian government's 5% deposit scheme came into effect on October 1st, 2025. However, Powell warns that potential interest rate hikes could put upward pressure on rents. Higher mortgage interest rates could make homeownership more expensive, leading more people to stay in the rental market longer and potentially increase housing demand, ultimately driving up rents.
What are your thoughts on these trends? Do you think the market is truly rebalancing, or are we just seeing a temporary pause? Share your insights in the comments below!
