Strong population growth and more demand have led to an increase in housing rents. Article by Christina Zhou  Domain reporter , The Age 16/04/2015

The rental market has never been tougher for tenants as rents in Melbourne soar to an all-time high. 

The median asking rent for houses increased by 2.5 per cent over the March quarter to $390 a week, according to Domain Group's rental report released on Thursday.

Unit rents also climbed by 1.4 per cent over the quarter to $365 a week.

Strong population growth and more demand have led to an increase in house rents for the first time in 18 months, Andrew Wilson, the senior economist for the Domain Group, Andrew Wilson, said.

Compared with the unit vacancy rate of 2.8 per cent, he said the vacancy rate for houses remained "quite tight" at 1.9 per cent.

"Despite an increase in investor activity in Melbourne, it's certainly still not providing the amount of new properties to take pressure off rent increases," Dr Wilson added.

But the growth is certainly not uniform. A closer look at the data reveals that it is the inner-ring and outer-eastern suburbs that are driving the demand. 

"Rents tend to track prices - that's because renters by and large want to live in the same places where they want to buy," Dr Wilson said. 

"Perhaps people who are waiting in the queue [to buy] are renting out there, and it's just that very strong energy in the outer east which is driving increases in rent and prices."

Experts say rising rents is particularly bad news for first home buyers who will need to save harder and longer to get a foothold on the property ladder. 

"House prices are going up, interest rates are low but they won't be low forever, rents are going up - what this means for first home buyers is a real question," Hocking Stuart chief executive Nigel O'Neil said. 

"They're going to have to stay at home longer to build up a reserve of cash ... so they can save up what will be a substantial deposit to get into the market down the track."

And those who can't afford to buy will continue to drive demand for inner-city apartments as well as areas popular with first home buyers - which means higher rents. 

Meanwhile, Dr Wilson said it was still suburban units rather than city apartments that were experiencing rent increases. 

He expects that as the apartments that are currently under construction become available to rent over the next few years, rental growth would be further dampened. 

This means bargaining power for tenants such as Charles Reid, 26, who has been sharing a three-bedroom apartment in St Kilda. 

Mr Reid said they had to pay more rent each time their lease agreement was renewed over the past four years, but there would be no increase when they sign the documents again this year.

"When [the agent] asked if I wanted to extend it, I said I would be keen but subject to whether they're going to increase the rent or not," the construction project manager said.

"And obviously it was cheaper for them to have me stay in there because if I move out for one month, that's $2000 down the drain."

Rents in Melbourne may have hit a record high, but it remains affordable compared with Sydney where the median house and unit rents are $520 and $500 respectively.