Residential property yields in Australia - Data and Analysis (1990-2033)

IBISWorld forecasts residential property yields to rise by 0.04 percentage points in 2025-26, to average 3.68%. Robust population growth – stemming from high immigration - coupled with a limited housing supply, has intensified pressure within the housing market. Rampant inflation during the second quarter of 2025-26 spun the macro-economic narrative from pencilled-in rate cuts to higher-for-longer prices. In February, the RBA responded with its first-interest rate hike since November 2023. Rising interest rates, coupled with sticky inflation, weighed on mortgage affordability, squeezing first-home buyers out of the market and pressuring the budgets of overleveraged homeowners. This rise in mortgage unaffordability pushed households into the rental market, cementing historically low vacancy rates of approximately 1.2%. Rising rental demand transferred pricing power to lessors, allowing them to pass on rising mortgage costs to their renters. This lifted rental yields.In the five years leading into 2025-26, residential property yields fell at an average annual rate of 0.004 percentage points. This result was skewed by abnormally strong property price growth during 2020-21 and 2021-22. A record low-interest rate environment during 2020-21 and 2021-22 coincided with several tax initiatives like negative gearing and the capital gains tax (CGT) discount, to lift demand for houses. These conditions led to a 21.00% increase in metropolitan house prices in 2021, according to the Independent National Housing Agency.Rising house prices didn't immediately inflate rents. Australia's lenient property tax system, dis-incentivised property owners from passing on property values to their tenant's rents. Australian taxation allows investment property owners to make a net loss on their property during the financial year and use that loss to claim a tax deduction from their taxable income in the same year. This practice, negative gearing, discouraged property owners from fully passing on rising house prices to renters, suppressing residential property yields. However, as cost-of-living pressures have intensified over the past five years, homeowners have increasingly forfeited tax concessions to bolster their immediate rental income, thereby raising rents annually to subsidise growing mortgage payments. This helped to steady rental yields following sharp falls in 2020-21 and 2021-22.