Australia's rental market faces an uncertain future.
With rents continuing to climb and proposed changes to negative gearing set to reshape investor behaviour — and potentially the supply of future landlords — attention is turning to what comes next for renters. The pressure is already intense. Rental supply remains low, leaving more people competing for fewer properties and driving rents even higher.
"Nationally, the rental market remains very, very tight," said Gerard Burg, head of research at Cotality Australia. "New rental listings have remained relatively constrained. And what that has of course done is flow through into the amount of rent that people are paying. Now nationally, the amount of rent to proportion of income that people have been paying has been at a record level, as of December last year.
"So it's a very, very tight market," he added. "Adding supply in, right now, has proved to be very difficult."
According to SQM Research, the national vacancy rate was just 1.2% in April, with five out of eight of Australia's capital cities tracking rates lower than 1%, including Hobart, Darwin, Adelaide, Perth and Brisbane. At the same time, rents rose 2.1%, nationally, in the three months leading up to March, according to Cotality's Q1 2026 Rental Review. That's on top of a 1.2% increase in Q4 2025.
Meanwhile, proposed changes in the 2026–27 federal budget would limit negative gearing benefits to newly built homes only. The policy is designed to help would-be homeowners break into the market. But critics warn it could deter investors when housing and rental supply are already stretched thin.
"It is not obvious at this time how a reduced supply of rental properties, coupled with increasing demand due to factors including population growth, can do anything except drive up rental prices for many who are already struggling," said Peter White, interim chief executive officer of the Finance Brokers Association of Australia (FBAA).
Nerida Conisbee, chief economist at Ray White Group, added: "Affordability pressure does not disappear when you reduce investor incentives; it shifts onto tenants. We have seen this play out before."
Fewer investors buying properties could mean even fewer rental homes available, intensifying competition among renters and putting further upward pressure on prices. The debate now centres on a difficult question: should policy prioritise helping aspiring homeowners into the market? Or protecting renters in an already undersupplied system?
"That's a tough question," Robert Sordillo, founder and managing director of Adelaide-based brokerage Significant Financial Solutions, told Australian Broker. "At the moment, I don't think they're prioritising anybody."
He added that the "underlying issue is that the costs associated with renting will definitely increase. Rents are definitely going to increase because the investor is going to need to obviously offset the tax. So to offset the tax they're going to have to increase costs.
"And the problem is that the renters are going to find it more difficult to get out of their current state and get and buy, because the opportunities are going to be limited," Sordillo continued. "So it's going to have a ripple effect."
And the problem is only set to get worse. In addition to updated negative gearing guidelines, the Australian Taxation Office (ATO) has updated its policies around holiday homes, requiring homeowners who rent out a second home to prove the property is operated as an income-generating rental, rather than a personal holiday home.
Sordillo said, "there's always going to be investors. What this is really doing is changing the type of investments."
Westpac estimated that the combined impact of the changes could lead to new investor activity plunging by as much as 34% in the near-term, with the remaining investors pivoting their focus to newly-built homes.
Adding to the pressure are broader economic headwinds — including higher interest rates, inflationary pressures, global instability and a tightening jobs market — all of which are making Australians more cautious than ever to buy, and pushing even more people into an already overcrowded rental market.
"A lot of people have been saying that now is not the time to be making a house purchase, it's just too uncertain," Burg said. But with home ownership still out of reach for many, renters are increasingly being forced to adapt.
"We are seeing people start to reevaluate how their living arrangements exist," Burg explained. "Perhaps some renters might move back in with their parents, some might look for an extra tenant. For example, that home office might become someone else's bedroom."
