Australia's national rents rose 0.5% in the September quarter, slowing from a 1.6% increase in the June quarter, as stretched affordability and slower population growth eased rental demand and lifted the national vacancy rate to 2.1%, Cotality said in a Friday report.

Cotality Research Director Tim Lawless said rising rental costs, which now consume a record 34% of renters' pre-tax income, were driving households to share accommodation, live with family longer or relocate to more affordable areas.

Unit rents have increased by more than 44% over the past five years, outpacing the nearly 37% rise in house rents, while annual population growth slowed to 1.4% in the year to March, below the pre-COVID decade average of 1.6%, per the report.

Despite higher housing approvals and investor lending in 2025, flat dwelling completions constrained rental supply, with Lawless attributing slower rental growth and rising vacancies mainly to softer demand.

Sydney was the only capital to record a quarterly rental decline, down 0.4% to AU$843 a week, while Darwin led growth with an 11.6% annual rise to AU$774; Adelaide had the lowest vacancy rate at 1.4%, while Hobart's climbed to 3.1%.

Regional rents rose 0.8% during the quarter, outpacing the 0.4% increase across the combined capital cities, while nationally, house rents climbed 0.6%, double the 0.3% growth recorded for units.

Gross rental yields hit 3.9%, their highest since August 2019, led by Darwin at 6.5% and lowest in Sydney at 3.4%, while high mortgage rates and rising holding costs squeeze investor cash flow.

Lawless expects rental growth to slow further as affordability constraints limit tenants' ability to absorb higher rents, while vacancy rates are likely to remain below their long-term average over the coming year.