The cities where rents are soaring faster than property prices

When COVID-19 arrived, many Australians braced for a dramatic drop in property prices predicted by major banks, but Australia's housing market defied expectations and surged instead.

In the tumultuous years that followed, a post-lockdown inflation boom spurred the Reserve Bank of Australia (RBA) to implement multiple rate hikes, driving mortgage costs significantly higher.

While initial border closures softened rental demand, the subsequent reopening led to a rapid spike in rents as demand returned, with landlords passing on increased costs to tenants.

With rental prices now climbing faster than property prices in some cities, have rents truly caught up with soaring property values, and is this trend consistent across the country?

To find out, Finder created two indexes tracking rents and property prices using CoreLogic data, both benchmarked at 100% in January 2020. In each case, the indexes use a 12-month rolling average value for prices.

The results show that while rental prices have caught up with house price rises in all cities, they have surged significantly higher in some.

This reveals the markets where renters have experienced a much larger price hike, as a percentage, than landlords have seen in their mortgage costs.

Sydney

Property and rental prices in Sydney have taken two very different paths to reach a similar destination.

Dispelling fears of a property market crash, Sydney's property values increased steadily through several phases of lockdowns, experiencing significant growth during the COVID period.

After lockdowns fully ended in late 2021, property price growth accelerated dramatically, reaching a peak of over 30% growth by mid-2022. Prices then declined slightly before recovering again in recent months, resulting in an overall 35% increase over the period.

Rental prices, however, followed a different trajectory. They declined during the initial lockdowns and remained relatively flat throughout 2020 and most of 2021, largely due to curtailed economic activity and closed borders reducing demand for rental housing.

Only when Australia's border restrictions were fully eased towards the end of 2021 did rental prices start to climb, increasing rapidly at a rate of around 10% per year. By 2024, rental prices had risen 36% above their January 2020 level, closely aligning with the overall growth in property prices.

For property investors, Sydney's market remains resilient, with long-term capital growth evident despite short-term fluctuations. The solid rebound in property prices suggests continued demand, while the sustained rise in rental prices indicates a tightening rental market.

Investors may find opportunities in high-demand rental areas where yields have strengthened due to surging rents. For renters, however, affordability is becoming an increasing challenge as rental prices rise in tandem with property values.

Melbourne

Melbourne's property and rental markets have followed distinctly different trajectories.

After an initial COVID shock, property prices experienced a steady increase from mid-2020 to mid-2022, largely driven by low interest rates and the Victorian Homebuyer Fund.

However, since mid-2022, property values have declined and have remained approximately 10% above January 2020 levels for the past couple of years. This stagnation has been attributed to factors such as increased property taxes, which have prompted investors to sell off properties, leading to a surplus in listings and exerting downward pressure on prices.

In contrast, rental prices in Melbourne tell a different story. The city's extended lockdowns in mid-2021 led to a 5% drop in rental prices due to reduced demand, as international borders were closed and economic activity slowed. Following the easing of restrictions and the reopening of borders towards the end of 2021, rental demand surged, resulting in a dramatic increase in rental prices.

Currently, rental prices are approximately 30% higher than at the start of the index in January 2020. This surge is primarily due to a tight rental market with low vacancy rates, intensified by robust population growth and a decline in construction activity, which has limited housing supply.

For potential property investors, the current market presents both challenges and opportunities. The decline in property values, combined with rising property taxes, suggests a cautious approach. However, strong rental demand and rising yields may still offer attractive returns for rental property investors.

Prospective renters face a competitive market with rising rents and low vacancy rates. Expanding their search to a wider range of suburbs and staying informed about upcoming housing developments could lead to more accessible rental options in the future.

Adelaide and Brisbane

Brisbane and Adelaide have followed similar trends in property and rental prices over the past few years, with consistent growth outpacing Melbourne and Sydney. In both cities, prices remained relatively stable throughout 2020 before rising steadily from early 2021.

This growth continued over the next two years, with property prices rising significantly before plateauing slightly in late 2023. As of today, property values in both cities have increased by more than 50% since January 2020, driven by strong housing demand and limited supply.

Rental prices followed a nearly identical pattern, staying flat during 2020 before rising sharply from early 2021 onwards.

The surge in rental demand, particularly from 2022, has led to rental price growth that almost matches the increase in property prices.

In Brisbane, rental prices slightly outpaced property prices for much of 2023 and early 2024, while in Adelaide, the two metrics remained closely aligned. By 2024, rental prices in both cities had increased by over 50% compared to their pre-pandemic levels, making them among the strongest-performing rental markets in the country.

For both investors and renters, these trends indicate a highly competitive housing market.

Investors in Brisbane and Adelaide have seen strong capital growth, while rental yields have remained robust due to rising rental prices. However, for renters, affordability has become a growing concern as prices continue to rise, mirroring trends seen in other major Australian cities.

Perth

Perth's property and rental markets have undergone some of the most dramatic changes among Australia's major cities.

While property prices in Perth followed a steady but modest upward trend from 2020 to early 2023, they have accelerated sharply since then.

Unlike Sydney and Melbourne, where price growth has plateaued or declined at times, Perth's property prices have continued rising and now sit over 40% higher than January 2020 levels. However, the most striking difference is in rental prices, which have far outpaced property values, surging over 70% since early 2020, making Perth's rental market one of the most competitive in the country.

This rapid rental price growth sets Perth apart from Australia's other major capitals.

The sharp increase appears to be driven by strong demand and a severe supply shortage. Additionally, a post-COVID mining boom and increased demand for minerals as global supply chains recovered have introduced a wave of well-paid workers into the rental market, further intensifying competition for housing. Renters in Perth may therefore be among the most impacted Australians by the cost of living crisis.

The national picture

The data highlights that market resilience remains a dominant theme across Australia, albeit with varied growth trajectories in different cities.

Investors who plan to hold properties long-term may benefit from steadily climbing prices and rising rental yields, which have outpaced mortgage costs in many areas. However, global trade uncertainty adds a further layer of caution, especially in Perth where a potential tariff war triggered by the Trump administration could unsettle the mining sector.

Recent volatility in global politics suggests these strong growth figures may not be guaranteed to continue, even though the Reserve Bank of Australia has recently lowered the cash rate. Investors should stay alert to shifts in demand or exports that could impact local job markets and property values, particularly in resource-dependent regions.

For renters, affordability remains a pressing concern as rental prices match or exceed property price growth in many cities. Rising costs can be challenging to manage if employment or wage growth slows. In high-demand areas with tight supply, flexibility is crucial - exploring emerging suburbs or those on the city fringe can offer more affordable options.

This data underscores the argument that rapidly increasing rental prices in some cities may require government intervention to ensure affordability. Ultimately, as Australia's property market continues to evolve against a backdrop of global uncertainty, only those who remain proactive, informed, and adaptable will be best positioned to navigate the challenges - and opportunities - that lie ahead.

Finder's Rent vs House price index is updated regularly on Finder.com.au.

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