The continued rise in rents may have already resulted in a shift towards higher density options, as renters look seek more affordability.

CoreLogic’s national rental index posted a growth of 0.6% in September, the lowest monthly rise in rents since December 2021.

Since the rental growth peak in May 2022, the monthly pace of gains has been easing, a phenomenon that is most apparent across regional markets.

Regional areas recorded a gain of 0.3% over the month, which was a substantial drop from the peak of 1.4% in January 2021.

CoreLogic research director Tim Lawless said the slowdown in rental growth is surprising, especially given the sustained decline in vacancy rates.

“A gradual slowdown in rental growth in the face of such low vacancy rates could be an early sign that renters are reaching an affordability ceiling,” he said.

Since the onset of the COVID-19 pandemic, rents have already risen 16.5% in capital cities and 25.1% in regional markets.

“It’s likely renters will be progressively seeking rental options across the medium to high density sector, where renting is cheaper, or maximising the number of people in the tenancy in an effort to spread higher rental costs across a larger household,“ Mr Lawless said.

Proof of this shift can be seen in the higher rental gains of units relative to houses — unit rents across capital cities increased 3.8% in September, higher than the 2.3% rise in house rents.

“A material rise in rental supply seems a long way off, considering private sector investment activity is trending lower and a larger than normal portion of for sale listings are investor-owned properties,” Mr Lawless said.

Overall, gross rental yields remained on a “rapid” upwards trajectory, as dwelling prices continue to fall.

In fact, capital city gross yields are now at the highest level since January 2021 at 3.36% — this was led by the huge upside in unit yields.

Regional gross yields, while posting a smaller gain, are at 4.3%, still higher than the 3.4% in capital cities.

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