Melbourne rents have hit a new high, but growth is no longer even across the city, varying sharply by property type and location. Picture: Frank Knight
Melbourne’s median rent has hit a new high, but it’s being driven up by increases in the city’s affordable unit market and comes as the typical cost of leasing a house has begun to fall.
New data from PropTrack shows Melbourne’s median weekly rent rose 2.7 per cent over the year to $575, leaving it the second-cheapest capital city behind Hobart and on track to become the cheapest as stronger growth continues elsewhere.
Behind the headline figure, the city’s rental market has fractured.
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Melbourne was the only capital city where house rents fell year-on-year in December, down 0.9 per cent, while unit rents rose 4.5 per cent over the same period.
REA Group senior economist Anne Flaherty said Melbourne’s more modest rent growth reflected affordability limits, population flows and stronger first-home buyer activity compared with other capitals.
“Population growth is still supporting rental demand, but Melbourne differs from markets such as Sydney because renters are more able to transition into home ownership,” Ms Flaherty said.
REA Group senior economist Anne Flaherty says Melbourne’s more modest rent growth reflects affordability limits, population flows and stronger first-home buyer activity.
Rental conditions across Melbourne are diverging, with some landlords losing pricing power as competition increases in parts of the market. Picture: Jake Nowakowski
“Every time a renter buys a home, that typically frees up a rental property for someone else.”
Ms Flaherty said the split between houses and units was largely driven by where demand was strongest.
“Much of Melbourne’s population growth and rental demand is concentrated in inner-city and inner-fringe suburbs, where apartments make up a larger share of rental stock,” she said.
“Houses are more commonly located in middle and outer suburbs, where rental demand is not as strong.
“That explains why we’re seeing softer conditions for houses compared with units.”
She said that while rent growth had slowed, rents remained well above pre-pandemic levels.
Ongoing population growth could place renewed pressure on the market if housing supply failed to keep pace.
Buyer’s advocate and PIPA chair Cate Bakos says landlords in oversupplied areas are facing growing resistance to rent increases.
Prominent Melbourne buyer’s advocate and PIPA chair Cate Bakos said the data showed Melbourne’s rental market had become increasingly uneven, with outcomes now heavily dependent on location and property type.
“Unit demand is absorbing much of the city’s rental pressure, particularly in established areas closer to the CBD and major activity centres,” Ms Bakos said.
“At the same time, some house markets are losing momentum due to oversupply.”
Ms Bakos said outer-fringe locations with long commute times, limited amenity and large volumes of similar housing stock were where landlords faced the greatest resistance to rent increases.
“When properties are interchangeable, tenants have options and landlords lose leverage,” Ms Bakos said.
Established suburbs with strong amenity and low vacancy rates continue to outperform softer outer-ring rental markets.
She said changing household formation patterns were also easing pressure in parts of the house rental market.
“Melbourne saw a sharp rise in solo living during Covid lockdowns, which increased demand for separate dwellings,” she said.
“As share housing has returned, household sizes have increased again. That has reduced demand for houses in some areas.”
By contrast, Ms Bakos said established suburbs with strong amenity, shorter commute times and genuine scarcity continued to outperform, delivering more reliable demand and stronger rents.
Outside the capital, rental pressure remains elevated.
Regional Victoria rents rose 6.5 per cent over the year to $490 a week, driven by limited new supply and continued demand from households seeking lower living costs.
Nationally, rents climbed to a record $650 a week, up 4.8 per cent over the year, adding about $1560 annually to the typical renter’s costs.
Australian Community Housing chief executive Mark Degotardi says Australia is short of affordable rental housing in the locations where demand is strongest.
Australian Community Housing chief executive Mark Degotardi said the figures highlighted a long-running mismatch between what was being built and what renters could afford.
“We’re short of the right housing in the right places at the right price points,” Mr Degotardi said.
“Units should be the affordable option, yet they’re now experiencing the sharpest pressure.
“That shows the system isn’t delivering enough genuinely affordable rental housing.”
Mr Degotardi said the idea that simply increasing overall housing supply would automatically lead to lower rents was misguided, particularly given constraints in the construction industry.
Melbourne renters are paying less than most other capitals, but supply constraints continue to shape where pressure is most intense.
“It matters what we build and where we build it,” he said.
“The gap between what it costs to deliver new rental housing and what renters can pay has never been wider, especially in regional areas where rent growth is strong but the commercial case for new development is weakest.”
The Australian Community Housing chief executive said accelerating the delivery of social and affordable housing was the most effective way to relieve pressure in the short to medium term.
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