April vacancy rose to 1.2%, the first rise in 12 months. Asking rents still climbed 7.3%

This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.

This article is general information only and does not constitute financial, tax, or investment advice.

The data drop that mattered most for the rental market in May 2026 was not the RBA's 4.35% hike on 5 May or the May 19 minutes. It was a four-page bulletin from SQM Research published on 12 May. That bulletin lifted the national residential rental vacancy rate from 1.0% in March to 1.2% in April. That is a 20 basis point shift in one month, which translates into 3,526 more vacant rental dwellings on the market and a total stock of 35,258 vacancies nationally.

For a rental market that has spent the better part of three years setting new lows every quarter, the first material monthly rise in a year is the cleanest directional signal since the cycle started.

What the headline number actually means

A national vacancy rate of 1.2% still sits well below the 2.5% to 3.5% range that the industry considers a balanced market. It is below the decade average of 2.5% reported by Cotality and well below the longer-run PropTrack benchmark. SQM's 1.2% is also below the parallel Cotality reading of 1.6% for the combined capitals in April, but the two series use different denominators, and the directional signal in both is the same: vacancy has lifted off the trough.

The driver is supply. New rental listings nationally have been climbing through Q1 2026 as accidental landlords return to the market following the May 5 cash rate decision and as investors who held off through 2025 push stock back into the rental pool ahead of the Federal Budget's 12 May negative gearing announcement. Demand has not collapsed. ABS overseas migration data for March 2026 recorded 40,400 net permanent and long-term arrivals, the second highest March figure on record, with a 12-month rolling total close to 486,300. The pressure side has not gone away. The supply side has finally pushed back.

That distinction matters for landlords thinking about pricing the next renewal. A vacancy rate that lifts on supply rather than collapsing on demand is a different beast. Asking rents still grew 7.3% over the year on SQM's measure. Tenants are still paying more. But the marginal next listing has more competition than it did three months ago.

Capital city split: Sydney softens, Darwin tightens

The headline tells you the direction. The capital city breakdown tells you where the action is.

• Sydney: 1.1% in March, 1.3% in April. 9,696 vacant rental dwellings, the highest absolute count of any capital. Inner-ring and middle-ring postcodes are doing most of the loosening.
• Melbourne: 1.8% (largely unchanged month on month) with 9,325 vacant dwellings. Melbourne has been the loosest major city for six months and remains so. CPS rental listings in the inner east and south-east have lifted on a year-on-year basis.
• Brisbane: 0.8%, held flat. Brisbane has been notably steady through 2026 despite a hot capital growth print.
• Perth: 0.5% in March, 0.6% in April. The first uptick in over a year, but still the second tightest capital after Darwin.
• Adelaide: 0.7%, held flat. 1,117 vacant dwellings, which is a fraction of Sydney and Melbourne in absolute terms.
• Darwin: 0.4% in March, 0.3% in April. Just 75 vacant rental dwellings across the entire city. Darwin tightened further while every other major capital either held or loosened.
• Hobart and Canberra: Both held in the 1.3% to 1.7% band, with Canberra continuing to track closer to balance than the rest of the country.

The read is straightforward. The softening is concentrated in Sydney, Melbourne and the eastern fringes of Perth. The mid-tier and smaller capitals are still tight. A landlord in Brisbane, Adelaide, Darwin or Perth's tight inner suburbs is in a different market to a landlord in inner Melbourne or Sydney's lower north shore. The national headline of 1.2% masks the split.

Asking rents still up 7.3%, but moderation is coming

SQM's bulletin also reported asking rents at the national level. The annual change is 7.3%, still well above the 3.3% wage price index growth recorded by the ABS for the March quarter 2026. The gap between rent growth and wage growth is real, and the affordability ceiling we wrote about last week has not gone anywhere. Households were already committing a record share of gross income to rent before the April data drop.

What has shifted is the forward view. Louis Christopher's commentary alongside the April bulletin sets a 2026 capital city rental growth forecast of 2% to 4%. That is a meaningful step down from the 7.3% current asking trajectory. The mechanics:

1. Migration is still elevated, but it is no longer accelerating. The 12-month rolling figure has cooled from late 2024 peaks.
2. New build supply is lifting on the back of multi-year construction pipelines now completing.
3. The affordability ceiling has forced more households into shared arrangements, which lifts effective occupancy per dwelling.
4. The May 5 cash rate hike has added a small but real number of "I'll sell rather than re-tenant" decisions to the listings stream.

For investor cash flow models, the right way to use this is to plan a single CPI-linked rent review on the next renewal in Sydney, Melbourne and Perth, and to model flat rent for the second 12-month cycle. The 7.3% catch-up rents of 2023 and 2024 are not coming back without another supply shock.

Yields ticked up, just

Cotality's April 2026 Home Value Index put the national gross rental yield at 3.57% in April, expanding modestly off the recent low. Darwin holds the strongest gross yield at 6.0%, well clear of the pack. Sydney remains the lowest at 3.1%. Brisbane, Adelaide and Perth all sit in the 3.7% to 4.5% band. The mechanism behind the yield expansion is the same as the Q1 catch-up: prices are flat or falling in the eastern capitals while rents are still climbing, so the ratio expands by default.

A 3.57% gross yield on a property carrying a 6.84% average variable rate is structurally negatively geared before the tax shield. That is the maths that the May 12 Budget then attacked.

The Budget cut: what changed for new contracts after 12 May

The relevant numbers in the Treasurer's papers are not in the Treasury's tax reform chapter headline summary. They are in the application dates.

Negative gearing on established residential property. Abolished from 1 July 2027 for properties purchased after 7:30pm AEST on 12 May 2026. After that date, rental losses on a post-announcement established residential purchase can only be offset against residential rental income or future capital gains from rental properties. They cannot reduce taxable salary or other personal income.

Grandfathering. Properties held at the cut-off, and properties under contract but not yet settled at the cut-off, are exempt indefinitely. Existing landlords keep the old rules for as long as they hold the property.

Grace period. Properties purchased between 7:30pm AEST on 12 May 2026 and 30 June 2027 can be negatively geared during that 13-month window, but not after 1 July 2027.

New residential property. Exempt from the change. Both negative gearing and the existing 50% CGT discount remain available for eligible new builds. This is now the explicit lever for the government's housing supply ambition.

Capital gains tax. From 1 July 2027, the 50% CGT discount on assets held longer than 12 months is replaced by cost base indexation plus a minimum 30% effective tax on net capital gains for assets held by individuals, trusts and partnerships. Investors in new residential property can elect between the existing discount and the new regime on disposal. Crucially, unlike the negative gearing change, the new CGT regime is not grandfathered for residential property: any disposal after 1 July 2027 falls under the new regime regardless of when the property was bought.

The grandfathering on negative gearing is generous. The CGT change is not. An investor who bought in 2018, holds today and sells in 2028 keeps negative gearing throughout but pays the new CGT regime on the gain. That is the central trade in the new tax landscape.

What does the vacancy turn plus the Budget mean for a Sydney landlord, in numbers?

Take a representative example. A Sydney investor with a $1.2 million established apartment bought in 2019, on an interest-only investor loan of $800,000 at the current average investor variable rate of about 7.1%. Annual interest cost roughly $56,800. Rental income at the median Sydney house rent of about $824 a week (or apartment equivalent around $700 a week) is roughly $36,400. Pre-tax loss approximately $20,400 before depreciation, council rates and management fees.

Today, under existing rules, that $20,400 loss reduces taxable salary. At a 37% marginal rate, the tax shield is worth about $7,548 a year. The net cash cost after tax is roughly $12,852. If our investor exchanged contracts before 7:30pm on 12 May 2026, they keep that shield indefinitely, including on top-ups and refinances against the same property.

If our investor exchanges contracts after that cut-off, the shield disappears from 1 July 2027. The $20,400 loss can carry forward against rental income or future capital gains, but it cannot reduce salary. The net cash cost after tax becomes the full $20,400 until either the property turns cash-flow positive (unlikely with a 3.1% Sydney gross yield) or it is sold.

The vacancy turn now puts a third lever in play. If the Sydney rent renewal comes in flat rather than +3% as the prior trend would have suggested, the investor's pre-tax loss widens by about $1,100 a year. Not catastrophic, but real. And the right test for "should I buy now or wait" is exactly this combined math: softer rent growth ahead, sharper after-tax economics if you contract after 12 May, but cheaper purchase prices in Sydney and Melbourne offsetting some of that on the entry.

Run that math on your own loan balance with our mortgage repayment calculator before you sign anything this month.

What landlords should do this week

The vacancy turn and the Budget cut land together. Three actions follow.

1. Document the grandfathering. If you exchanged contracts before 7:30pm on 12 May 2026, keep the contract, settlement statement and any tax-deductible loan documentation in one place. The grandfathering is generous but it is also documentation-dependent. Use Propkt's expense tracking to keep the loan history, repairs, and depreciation records on one timeline so you can show continuous ownership if the ATO ever asks.

2. Re-price the renewal where vacancy has loosened. In Sydney, Melbourne and Perth, the supply-demand balance has shifted at the margin. A flat rent on a 12-month renewal in those cities is more defensible now than a +3% bump, and the cost of a four-week vacancy at $800 a week is $3,200, which is more than a year's worth of a 4% rent rise on the same lease. Don't push through a rent rise just because last year you could.

3. Reset the buy-or-hold thesis. New residential property now carries a permanent tax-policy advantage over established residential property. If you are still in the buying market, the after-tax maths on a new build versus an established dwelling has stepped sharply in favour of the new build. That does not make every new build a buy. It does mean the comparison frame has changed and you should re-run any pre-12-May business case.

The next data point that matters is the SQM May 2026 vacancy bulletin due in mid-June, which will confirm whether the April uptick is the start of a trend or a one-month wobble. Watch the Sydney and Melbourne numbers in particular. If they print another 10 to 20 basis point rise, the rental market story for the second half of 2026 changes from "tight" to "moderating", and that changes the rent review playbook for every landlord with a renewal in the second half.

Propkt tracks vacancy data, rent benchmarks and your portfolio cash flow in one place. If you want to model the negative-gearing shield on each of your properties against the new rules, the Propkt expense tracker and rent management dashboard will save you the spreadsheet work.

This article is general information only and does not constitute financial, tax, or investment advice. Talk to a registered tax agent or financial adviser before acting on any of the figures above.