Rental Market Hits Affordability Ceiling as Vacancy Rates Reach Record Lows

Renters have reached their financial limit, with record-low vacancy rates failing to drive rent increases across the capital cities, according to new Domain data.

The Domain Rental Report shows national vacancy rates have fallen to a record low of 0.7 per cent, continuing the pressure on renters across the capital cities. Despite these conditions, rent growth is no longer uniform, with several markets now showing signs of slowing down.

Rental performance is increasingly fragmented across the country. Perth is recording the strongest rebound in rents, Brisbane continues steady growth, while Sydney has flattened at record highs, and Melbourne’s recovery remains uneven. Adelaide is also showing more seasonal growth patterns.

In Sydney, house rents remain at $800 per week, with unit rents at $750, marking the first sustained period in five years where rents have stalled despite extremely tight conditions.

Domain’s Chief Residential Economist Dr Nicola Powell said the market has now reached a clear affordability threshold.

“Three months ago, we warned that renters were running out of capacity to absorb higher rents. Even during the usually stronger quarter, this month’s data shows that affordability ceiling has now been reached,” Dr Powell said.

“Vacancy rates are lower than ever and supply remains incredibly tight, but rent growth is no longer accelerating everywhere. That tells us households simply can’t stretch any further.”

Dr Powell said affordability, not demand, is now the key constraint in the rental market.

“In many cities, we’re seeing rents hold flat or rise unevenly despite worsening shortages. Affordability, not demand, is now the key constraint,” she said.

While supply remains extremely tight, renter behaviour is increasingly influencing outcomes, with households adjusting expectations, delaying decisions, and shifting location or housing type in response to cost pressures.

Dr Powell said there is a clear disconnect between theory and reality in the current market.

“What we’re seeing now is a clear disconnect between theory and reality. In theory, tight vacancy rates should allow landlords to keep pushing rents higher. In reality, many renters are simply at their financial limit,” she said.

“Hitting an affordability ceiling doesn’t mean rents suddenly fall, but it does mean pricing power is weakening. The market is starting to self-regulate as renters push back, through longer decision times, negotiating harder, downsizing, sharing, or walking away altogether.”

Dr Powell said landlords expecting aggressive rent rises in 2026 may be overestimating demand.

“For landlords and agents expecting aggressive rent rises in 2026, the risk is overestimating demand elasticity. Pushing rents beyond what the market can bear can actually increase vacancy periods, tenant churn and leasing costs,” she said.

“The more sustainable strategy from here is defensive rather than aggressive growth: prioritising long-term tenancy, minimising turnover, and recognising that even in undersupplied markets, affordability ultimately sets the ceiling.”

Tighter household budgets are shifting renters’ priorities toward value, location and practicality, with more weight placed on affordability and liveability rather than competition for scarce properties.

*This information is general in nature and does not take into consideration your individual circumstances. Please contact us for further information.