The Australian rental market is experiencing a period of adjustment, with shifting dynamics that landlords must navigate carefully. Core Logic’s latest Housing Value Index provides valuable insights into rental price movements, supply constraints, and emerging trends that will influence investment strategies in 2025.
Rental growth moderates but remains above historical averages
While rental prices have risen significantly over the past five years, the rate of growth has eased in recent months. National rents increased by just 0.4% in January, a slower pace compared to previous years. This moderation is a sign that affordability pressures and supply factors are starting to influence rental demand. However, annual rental growth still sits at 4.4%, more than double the pre-pandemic decade average of 2.0%.
In major cities like Sydney and Melbourne, rental growth has flattened, particularly in the unit sector. Both cities recorded slight declines in unit rents over the past six months, offering some relief for tenants after years of steep increases. Meanwhile, regional rental markets remain stronger, with demand still exceeding supply in many areas.
Interest rates and borrowing costs
With interest rate cuts expected this year, landlords may see some relief on mortgage repayments. Lower rates will help stabilise cash flow for investors, particularly those with loans taken at peak borrowing costs. However, the easing cycle is expected to be gradual, meaning mortgage repayments will remain a key consideration for many landlords in 2025.
Supply challenges and vacancy rates
A critical factor shaping the rental market is the limited supply of new housing. Although dwelling approvals have increased slightly, construction delays, high material costs, and labour shortages continue to constrain new housing stock. This has kept vacancy rates at historically low levels, maintaining upward pressure on rents despite affordability challenges for tenants.
Some capital cities, such as Sydney and Melbourne, have seen a modest increase in rental listings, giving tenants more choice and easing competition for available properties. However, in cities like Perth and Adelaide, vacancy rates remain extremely tight, contributing to continued rental price growth.
Navigating the market ahead
For landlords, strategic decision-making in 2025 will involve balancing rental income, property expenses, and tenant retention. With affordability a growing concern, keeping rent increases in line with market conditions while ensuring properties remain competitive will be essential.
Investors may also find opportunities in energy-efficient upgrades, as demand for sustainable rental properties rises. Features like solar panels, efficient heating and cooling, and water-saving fixtures can enhance tenant appeal and long-term property value.
While rental growth is easing in some areas, strong demand and limited housing supply will continue to shape market conditions. Landlords who focus on maintaining well-managed properties, offering fair rent adjustments, and staying informed on market trends will be well-positioned for success in 2025.
Gross rental yields nationally
