Why Melbourne Renters Could Be Facing a 20% Rent Increase

Since the Federal Budget was handed down, I’ve witnessed a noticeable shift in investor behaviour.

Many of the investors I work with who were previously considering established homes are now focusing almost exclusively on new-build properties. The reason is simple: they want to preserve access to negative gearing and the 50% capital gains tax discount.

On the surface, this appears to be exactly what policymakers intended. The government’s goal is to encourage investment into new housing supply, and investors are responding accordingly.

However, I believe there is a significant risk that an unintended consequence of this policy shift could be even higher rents for Melbourne tenants over the coming years.

In my view, Melbourne rents could rise by as much as 20% over the next two to three years if current trends continue.

The challenge is that investor demand is being redirected towards new housing at a time when the supply of new homes remains well below what Victoria actually needs.

Demand for new builds is increasing, but there simply are not enough projects being delivered to meet that demand. Despite Victoria consistently recording strong dwelling approval numbers, the construction pipeline remains constrained by high building costs, labour shortages and financing pressures.

The reality is that there are not enough cranes in the air to keep up with the number of people moving to our state.

According to Australian Bureau of Statistics data, dwelling commencements fell to 13,489 in the December 2025 quarter, down significantly from the peak of 22,155 recorded in early 2021. Completions were 13,678 over the same period, well below the levels required to achieve Victoria’s Housing Statement target of 800,000 new homes by 2034.

To stay on track, Victoria needs to be completing around 20,000 homes every quarter. Instead, both commencements and completions are running at roughly two-thirds of that pace.

That gap matters.

At the same time that investors are being pushed towards a limited pool of new housing stock, I am also seeing some long-term investors exiting the market altogether.

Many of these investors have held properties for 10, 15 or even 20 years. Faced with rising holding costs, including land tax increases, compliance obligations, council rates and higher property management expenses, some are deciding that property investment no longer delivers the returns it once did.

Instead, they are selling and reallocating capital into more passive investment options such as superannuation.

When an investor sells, the impact on the rental market depends on who buys the property next. If another investor purchases it, the rental supply remains intact. But if the buyer is an owner-occupier, that rental property effectively disappears from the market.

When enough of those properties are removed, rental supply tightens and rents rise.

This is one of the key reasons I believe Melbourne could experience substantial rental growth over the next few years.

The pressure is unlikely to be spread evenly across the city. Areas with strong owner-occupier demand, highly regarded school zones, quality infrastructure and limited housing supply are likely to experience the greatest increases.

Premium townhouses, family homes and well-located apartments in tightly held suburbs are particularly vulnerable to further rental pressure.

We’re already beginning to see signs of this trend emerging. SQM Research data shows Melbourne asking rents increased by 0.7% between the end of April and the end of May 2026, more than double the national average increase of 0.3% over the same period.

The government’s strategy to encourage investment into new housing is understandable and, in many respects, necessary. Australia needs more homes, and policy settings should support additional construction.

The question is whether enough housing can be built quickly enough to meet demand.

If supply continues to lag population growth and investor demand, Melbourne renters may end up carrying the cost of that imbalance through significantly higher rents in the years ahead.

My commentary was reported by Smart Property Investment (here) and Australian Broker (here).