Key takeaways
Rents across Australia’s capital cities are still rising, but the pace has slowed significantly.
We’ve now had 13 consecutive quarters of growth, a record, but affordability ceilings are capping further increases, especially in Sydney and Melbourne.
Stagnant wages, high living costs, and previous rent hikes mean many households cannot afford to pay more, forcing a shift in rental behaviours, including downsizing, flat sharing, or moving further out.
National vacancy has ticked up slightly to 0.9%, still well below the long-term average.
However, we’re starting to see softening in some inner-city unit markets, a sign that supply is catching up in places where affordability pressure is most acute.
In Sydney and Melbourne, unit rents are growing faster than house rents as tenants opt for affordability. Melbourne units saw 17% annual growth — tied with Perth for the highest in the country, while house rents have plateaued.
The broad-based rental boom is over. Growth is now highly localised and segmented by property type.
Investors need to target areas with constrained supply, solid demand, and tenant appeal, particularly as rising investor participation and softening migration ease pressure on the market.
For the past few years, Australia’s rental market has been in overdrive.
Investors have seen record returns, renters have felt the pinch, and headlines have been dominated by “crisis” talk.
But now, as we begin a new year, something’s shifted.
No, rents haven’t crashed.
In fact, they’re still sitting near record highs in most capital cities.
But what we are seeing is a market that’s recalibrating; one where affordability ceilings are being hit, growth is uneven, and the dynamics between supply and demand are evolving in real time.
The December 2025 Domain Rental Report paints a picture of a rental market that’s still tight. but no longer running red-hot.
For switched-on investors, that creates both opportunity and risk, so let's unpack what’s happening.
Affordability is now the limiting factor
Australia’s capital cities are experiencing the longest stretch of rental price growth on record: 3+ years of consistent increases.
But according to Dr Nicola Powell, Domain’s Chief of Research and Economics:
“Affordability constraints are starting to place downward pressure on price growth, particularly in markets that have already recorded significant rental increases.”
In other words, we’re reaching the top of what tenants can afford.
Dr Powell notes that rents have hit a “price ceiling” in many cities, as incomes haven’t kept pace with housing costs.
With wages largely stagnant and cost-of-living pressures unrelenting, renters simply can’t absorb further increases at the same pace.
This is not just a seasonal cool-down, it's a structural cap on runaway rental growth.
Here’s what the data shows:
National Highlights – December 2025:
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Capital city house rents: Record high of $650/week, up $25 over the quarter.
Table 1: House rents, quarterly and annual changes
| HOUSES | MEDIAN RENTAL ASKING PRICE | ||||||
| Capital City | Dec-25 | Sep-25 | Dec-24 | Quarterly change | Annual change | Status |
| Sydney | $800 | $790 | $770 | 1.3% | 3.9% | Record (new) |
| Melbourne | $580 | $580 | $590 | 0.0% | -1.7% | $15 below record last seen in Sep-24 |
| Brisbane | $670 | $650 | $630 | 3.1% | 6.3% | Record (new) |
| Adelaide | $620 | $620 | $600 | 0.0% | 3.3% | Record (steady) |
| Perth | $700 | $700 | $670 | 0.0% | 4.5% | Record (steady) |
| Canberra | $700 | $690 | $680 | 1.4% | 2.9% | Record (new) |
| Darwin | $700 | $700 | $680 | 0.0% | 2.9% | Record (steady) |
| Hobart | $600 | $590 | $560 | 1.7% | 7.1% | Record (new) |
| Combined Capitals | $665 | $650 | $650 | 2.3% | 2.3% | Record (new) |
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Capital city unit rents: Record high of $590/week, up $20 over the quarter.
Table 2: Unit rents, quarterly and annual changes
| UNITS | MEDIAN RENTAL ASKING PRICE | ||||||
| Capital City | Dec-25 | Sep-25 | Dec-24 | Quarterly change | Annual change | Status |
| Sydney | $750 | $750 | $700 | 0.0% | 7.1% | Record (steady) |
| Melbourne | $580 | $575 | $550 | 0.9% | 5.5% | Record (new) |
| Brisbane | $650 | $630 | $600 | 3.2% | 8.3% | Record (new) |
| Adelaide | $525 | $520 | $490 | 1.0% | 7.1% | Record (new) |
| Perth | $650 | $650 | $620 | 0.0% | 4.8% | Record (steady) |
| Canberra | $580 | $560 | $560 | 3.6% | 3.6% | Record (new) |
| Darwin | $598 | $580 | $550 | 3.0% | 8.6% | Record (new) |
| Hobart | $480 | $485 | $460 | -1.0% | 4.3% | $5 lower than record last seen in Sep-25 |
| Combined Capitals | $650 | $650 | $630 | 0.0% | 3.2% | Record (steady) |
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Both house and unit rents have now risen for 13 consecutive quarters — the longest period of uninterrupted growth on record.
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The national vacancy rate rose slightly to 0.9%, still well below the decade average of 2.8%.
Table 3: House and unit combined rental vacancy rates
| HOUSE AND UNIT COMBINED | RENTAL VACANCY RATES | |||||
| Capital City | Dec-25 | Sep-25 | Dec-24 | Quarterly percentage point change | Annual percentage point change |
| Sydney | 1.4% | 0.9% | 1.7% | 0.5 ppt | -0.3 ppt |
| Melbourne | 1.6% | 1.3% | 1.9% | 0.3 ppt | -0.3 ppt |
| Brisbane | 0.9% | 0.7% | 1.1% | 0.2 ppt | -0.2 ppt |
| Perth | 0.5% | 0.4% | 0.6% | 0.1 ppt | -0.1 ppt |
| Adelaide | 0.6% | 0.4% | 0.6% | 0.2 ppt | 0.0 ppt |
| Hobart | 0.3% | 0.2% | 0.4% | 0.1 ppt | -0.1 ppt |
| Canberra | 1.5% | 1.1% | 1.8% | 0.4 ppt | -0.3 ppt |
| Darwin | 0.7% | 0.5% | 1.3% | 0.2 ppt | -0.6 ppt |
| Combined Capitals | 1.2% | 0.9% | 1.4% | 0.3 ppt | -0.2 ppt |
| Combined Regionals | 0.9% | 0.7% | 0.9% | 0.2 ppt | 0.0 ppt |
| National | 1.1% | 0.8% | 1.3% | 0.3 ppt | -0.2 ppt |
So yes, rents are still rising, but the quarterly increases are now more modest.
It’s a clear signal that we’re at a new phase in the cycle.
What’s behind this shift?
There are a few key forces at play:
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Affordability ceilings
After three years of steep growth, tenants are hitting financial limits. Many are making trade-offs, moving to cheaper suburbs, switching from houses to units, or sharing rentals. -
New investor supply
Rising yields have pulled more investors into the market. Domain data shows an uplift in rental listings in several cities, particularly for units, which is helping ease the imbalance slightly. -
Normalisation of migration
Net overseas migration has remained strong, but it’s no longer surging as it was in the post-COVID boom. This has eased some pressure on inner-city unit markets. -
Government intervention
Incentives for build-to-rent, planning reform, and tenancy changes are beginning to have an effect, albeit marginal at this stage. We’re still a long way from meaningful supply-side relief.
Key takeaways for strategic investors
If you’re a property investor or planning your next move, here’s what this report means for you:
Be selective
We’re entering a fragmented market. Not all suburbs, dwelling types, or cities will perform equally. Location and property type matter more than ever.
Don’t assume rents will keep rising
Yield growth is slowing. Factor in stable rents, or at most moderate increases, in your cash flow forecasts.
Units are back
Especially in Sydney and Melbourne, units are outperforming houses on a yield basis. This could be a smart play for investors priced out of freestanding homes.
Focus on tenant appeal
In a shifting market, well-maintained, well-located properties will outperform. Renters are more value-conscious and selective now.
Final thoughts
Australia’s rental market isn’t collapsing, it’s evolving.
We’re moving from the blunt-force boom of 2021–2023 into a more nuanced cycle, where economic pressures, policy changes and demographic shifts are reshaping how people rent, and where smart investors need to adapt.
As Dr Nicola Powell rightly puts it, affordability will be the key theme of 2026, not just for tenants, but for the investors who serve them.
