Australia's rental market was quietly improving in the months leading up to the federal budget — and then the government handed down its negative gearing and capital gains tax changes, and the long-term outlook for renters shifted.
New PropTrack data released by realestate.com.au shows the national rental vacancy rate rose 0.18 percentage points in May to reach 1.37% — the highest level since January 2025. Capital city vacancies climbed to 1.34%, while regional areas reached 1.45%, with nearly every market recording an increase over the month.
The improvement was real but came with significant context. Despite the monthly gains, the capital city vacancy rate remains 42% lower than it was five years ago.
REA Group economist Luc Redman (pictured) welcomed the direction of travel while flagging that the federal budget has changed the long-term picture.
"National rental vacancy rates were increasing in the lead up to the federal budget, with pressure on renters looking for accommodation easing. Even so, vacancy rates remain significantly lower than five years ago and conditions remain tight overall," he said.
On the policy impact, Redman was measured but clear.
"The near-term impacts of federal policy changes to negative gearing and capital gains taxation remain to be seen, but long-term dwelling supply will likely be marginally lower, placing greater upward pressure on rents," he said.
Redman said "areas with the lowest rental vacancy rates will likely experience the greatest rental price pressures from the budget," pointing to markets like Darwin at 0.77% and Hobart at 0.85%, which remain the tightest capital city markets nationally.
Australia's housing supply pipeline was already under significant strain before the budget. The NHSAC's State of the Housing System 2026 report, released in April, projects Australia will fall approximately 262,000 dwellings short of its 1.2 million Housing Accord target, with construction cost pressures estimated to reduce completions by between 10,000 and 33,000 by mid-2029 under modelled scenarios.
Across the capitals, Canberra led the monthly gains with a 0.30 percentage point increase, pushing it to the highest vacancy rate among capital cities at 1.67%. Melbourne rose to 1.63%, Sydney climbed to 1.37%, and Brisbane reached 1.01%. Adelaide, at 1.16%, and Perth, at 1.04%, also recorded gains. Hobart and Darwin remained the tightest markets nationally at 0.85% and 0.77% respectively.
Regional markets saw a slightly stronger uplift than capitals over the year — vacancies in regional areas rose 0.21 percentage points annually compared to just 0.03 percentage points across capital city areas. Regional Victoria was a standout, with its five-year vacancy change up 122%, though from a very low base.
EMBED: 06 05 PropTrack
The headline improvement masks an underlying reality that remains challenging.
“While the increase in the vacancy rate is encouraging for renters, the current vacancy levels remain at quite a low level, meaning rental price growth will likely continue, marginally compounded over the long term by the budget changes," Redman said.
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