Limited housing supply points to ‘moderation in rent growth’

Australia’s rental market is expected to remain tight over the next few years before new housing supply picks up and slowing population growth gradually begins to ease the pressure, according to new Commonwealth Bank analysis.

CBA senior economist Trent Saunders said Australia’s national rental vacancy rate was around 1.8 per cent, well below its 2015-2019 average of around 2.8 per cent, while annual advertised rent growth across the eight capital cities was 5.7 per cent.

But while there is some gradual improvement in the balance between the number of homes available and the number of people looking for somewhere to live, Saunders said the shortage of housing supply was still likely to be the major factor influencing the rental market.

“There is an important distinction between stopping a shortage from getting worse and eliminating it,” he said.

“Even if construction rises enough to meet new demand, the shortfall accumulated over recent years remains.

“Slower population growth is expected to reduce the pace of new housing demand, while a lift in completions should increase supply, pointing to a moderation in rent growth.”

The housing shortage remains the main influence on rents, with the number of households seeking rental properties still high relative to the number of homes available.

Dwelling approvals are expected to rise sharply over the coming year in response to previous increases in building approvals. Combined with slower population growth, that should narrow the gap between new housing demand and supply.

However, CBA expects it will take longer to make up the housing shortfall that has built up in recent years.

CBA research also highlights an important difference between advertised rents and the rent measure used in inflation data.

Advertised rents show the prices facing households entering a new tenancy. The Australian Bureau of Statistics’ Consumer Price Index rent measure covers the broader stock of rental properties, including continuing tenancies.

That means changes in advertised rents tend to flow through to CPI rents with a lag of about 12 months.

In the most recent inflation data published by the ABS, rental prices rose 3.6 per cent in the 12 months to August 2026, unchanged since May 2026.

CBA expects that to pick up to around four per cent during 2027 as earlier increases in advertised rents flow through, before gradually easing towards 3.5 per cent by the end of 2028.

The national picture also masks significant differences between states.

CBA’s analysis finds that areas where population growth has run ahead of growth in the housing stock have generally recorded stronger rent increases.

Western Australia stands out, with population growth exceeding growth in the dwelling stock by almost 10 per cent since late 2019. Queensland and South Australia have also recorded relatively large gaps between population growth and new housing supply.

The CBA report also examines changes to the tax treatment of residential property investors.

CBA’s analysis suggests the proposed changes to negative gearing and capital gains tax next year are likely to have only a small direct impact on rents.

One reason is if the property is bought by a renter who becomes an owner-occupier, there is one fewer rental property but also one fewer household looking to rent.

The research also suggests higher investor costs are may not be automatically passed through to tenants because landlords still compete with other rental properties and rents remain constrained by what prospective tenants are willing and able to pay.

Instead, CBA expects much of the adjustment in investor returns to come through lower dwelling prices and pushing rental yields higher, rather than substantially higher rents.

The eight-capital-city rental yield is forecast to rise from around 3.75 per cent in mid-2026 to about 4.5 per cent by late 2027, which Saunders said should progressively help stabilise investor demand.