Melbourne’s rental market is sending a clear signal to property investors. Rents are high, supply is tight and competition among tenants is strong in many suburbs.
For investors, understanding these rental dynamics is key. With a long-term view, this environment can support solid rental income and low vacancy risk, highlighting the importance of choosing the right property and finance setup.
Units catch up with houses
Melbourne’s median asking rent for units reached $580 a week in the December 2025 quarter, according to Domain’s latest Rental Report. That’s up $30 a week compared to a year earlier.
This figure now matches the median asking rent for houses – the first time unit and house rents have aligned since 2012.
On the other hand, house rents edged down by $10 a week over 2025, but the bigger picture matters more for investors. That’s because, despite this recent moderation, rents remain substantially elevated: approximately $200 per week higher than four years ago for units and well over $100 higher for houses.
The driver behind this trend is straightforward – a persistent lack of supply is intensifying competition for available properties in desired locations. Melbourne’s rental vacancy rate was 1.6% in the December 2025 quarter, well below the 2-3% that is considered a balanced market.
Why unit rents are closing the gap
The primary driver behind this jump in unit rents is that there is not enough supply of the kind of homes people want, where they want them.
For instance, the strongest rental growth over 2025 occurred in Melbourne's inner east, where house rents rose 5.7% to a median $840 per week and unit rents increased 6.4% to $585 per week. As the table below shows, several locations where unit rental prices soared were in the inner city, demonstrating that demand remains high close to the city centre.
Research from the Grattan Institute in 2025 found that 52% of Melburnians want to live in medium- or high-density housing, yet this accounts for only 32% of our total housing stock.
This is made even worse by the fact that about 87% of land within 30km of the centre of Melbourne is restricted to housing of three storeys or fewer.
Approval processes for new housing, where it is allowed, are also uncertain, and this shows up in the pipeline. The latest Australian Bureau of Statistics data reveals how inconsistent approvals for apartments are, with sharp month-to-month swings rather than a steady build. As the graph below shows, approvals have dropped by nearly 1,000 a month at times, then jumped above 2,500 in stronger months.
For supply, this volatility is a problem. Developers and builders need predictability to maintain momentum. And, even when approvals lift, new apartments take years to reach completion. That means today’s rental pressure will not ease quickly. The pipeline is improving, but not fast enough to keep pace with demand in well-located areas.
Why rental trends matter for investors’ strategy
This detail matters because it points to where rental pressure is likely to persist.
The biggest supply constraints are in medium- and high-density housing in established suburbs. These are the same property types many tenants prefer, particularly professionals and families who want to stay close to jobs, schools and transport.
When approvals for these projects are slow and uneven, the flow of new, well-located apartments and townhouses stays limited. That can support rents and occupancy for existing stock.
For investors, the takeaway is practical. Not all properties benefit equally from tight supply. Assets that match tenant preferences are more likely to see consistent demand.
Rental yields in the spotlight
High rents are only part of the story for investors. Yields show how that income stacks up against purchase prices.
Cotality data for January 2026 showed that gross rental yields for Melbourne units are sitting around 4.8%, compared to about 3.1% for houses. The gap reflects two things: units are generally cheaper to buy and, right now, they are seeing solid rental demand.
However, this does not mean units are always the better choice. Capital growth, strata costs, land value and location still matter.
Smart investor strategies for Melbourne’s rental market
Yields are a useful snapshot, but experienced investors know that long-term success depends on fundamentals rather than short-term figures. In Melbourne’s current market, several themes are shaping smart investment decisions.
1. Location and property type
Record unit rents and strong demand for medium-density living make these property types worth attention. Lower entry prices can improve gross yields compared with houses in the same suburb, but investors should also consider factors such as strata fees and potentially slower capital growth before deciding if a unit or townhouse is the right fit for their portfolio.
2. Tenant appeal
High rents are only part of the equation. Layout, natural light, storage and energy efficiency remain key factors that attract quality tenants.
3. Cash flow resilience
Strong rents provide a buffer, but interest rates and other holding costs are also relevant. With AXTON Finance, you can use our exclusive Next Purchase software to stress-test scenarios and keep financial buffers to protect against market shifts, ensuring investments remain sustainable through different cycles.
4. Long-term positioning
Savvy investors are looking at how each property fits with their broader financial goals. This includes considering potential capital growth, how the asset complements existing holdings and whether it suits the intended holding period.
Finance in focus
In the current Melbourne market, the right loan structure can make a real difference. It can improve cash flow, protect borrowing capacity and support future purchases, while the wrong setup can limit flexibility.
When looking at how to finance your next investment purchase, consider:
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Loan types (Interest-only versus principal and interest, and fixed versus variable splits)
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Ownership structures
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Equity release strategies for further purchases
Working with an experienced brokerage like AXTON Finance can help. We compare lenders and investor policies, structure loans across multiple properties, manage applications efficiently and model scenarios for future purchases.
Curious how Melbourne’s rental market can work for your investment goals? Speak to Axton Finance today to explore how the right finance setup can protect cash flow, unlock opportunities and support long-term growth. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or contact us today.