TLDR
Renters are getting no relief from the property downturn: rents are still climbing at 5.9 per cent a year on a vacancy rate of just 1.7 per cent, even as national home values fall. Gross rental yields across the combined capitals hit 3.7 per cent, the highest since August 2019, as a construction shortfall keeps rental supply tight.
KEY TAKEAWAYS
Two markets moving in opposite directions
Australia's national Home Value Index fell 0.7 per cent in July, the largest monthly decline since December 2022, according to Cotality's August 2026 housing chart pack.[1] The index covers a $12.4 trillion housing stock spread across 11.5 million dwellings.[1]
Buyer demand weakened sharply through the month, as lower auction clearance rates and falling capital city sales pointed to softer competition among prospective purchasers. Auction clearance rates dropped to the low 40 per cent range by the end of July, and combined capital city sales fell 3.5 per cent over the year.[1] National sales volumes slid 0.8 per cent over the same period.[1]
Rents moved the other way. Annual rental growth held at 5.9 per cent for a third straight month, with rents rising 0.4 per cent in July alone.[1] Gross rental yields across the combined capitals climbed to 3.7 per cent, the highest reading since August 2019.[1]
Gerard Burg, Head of Research at Cotality, said the divergence played out differently depending on location. "There's been plenty of discussion about how far housing values could fall, but the same percentage decline doesn't have the same impact everywhere," Burg said.[1]
Why supply is tight on both sides
Total dwelling commencements fell 11.2 per cent to 48,012 in the March 2026 quarter, according to Australian Bureau of Statistics data.[2] The figure reinforces a supply shortfall that has persisted through the rate cycle.
Tim Reardon, Chief Economist at the Housing Industry Association, said tighter borrowing conditions threatened to worsen the problem. Reardon said the decision is likely to reduce the number of new homes commencing construction at precisely the time Australia needs more housing supply.[4]
The Productivity Commission's interim report on housing supply regulation, released 27 July 2026, identified restrictive land-use regulations and planning delays as key barriers to lifting dwelling numbers.[3] Investor sentiment retreated following tax changes and higher borrowing costs, reducing the number of new rental properties entering the market.[1]
What rising yields against falling prices signals for tenants
Falling purchase prices alongside rising rental yields have historically drawn investors back into the market, though any return depends on borrowing costs and policy settings. The supply side shows little sign of catching up with demand at present.
The national vacancy rate edged up to 1.7 per cent in July, still well below the long-term average of 2.4 per cent.[1] Tenants face continued competition for available properties, with rental growth anchored by that scarcity. The Productivity Commission is scheduled to deliver its final report on housing supply regulation later in 2026.[3]
SOURCES & CITATIONS
FREQUENTLY ASKED QUESTIONS
How much did Australian home values fall in July 2026?
Why are rents still rising even as home prices fall?
What are rental yields doing?
How many new homes started construction in the March 2026 quarter?
Caleb Reed covers breaking news and sport. He works to the rhythm of a story as it unfolds, and he is happiest when the facts arrive faster than anyone can spin them.
