“Vacancy rates are dropping like a stone in both Sydney and Melbourne and that’s driving rental growth,” ANZ senior economist Felicity Emmett said.

Sydney’s previously elevated vacancy rate had quickly turned around as borders reopened, boosting demand – particularly in inner-city areas popular with international students – which had driven stronger rent hikes for the apartment market.

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Meanwhile, rental stock had reduced, with some landlords opting to sell investment properties earlier in the pandemic. Properties were also being returned to the short-term holiday market now that tourism had resumed.

Rental supply issues largely seen for houses in outer areas in recent years, as tenants flocked to bigger homes and outer suburbs amid lockdowns and remote working, were now shifting to inner areas, putting upward pressure on rents.

The city and inner south recorded some of the sharpest rent hikes over the quarter, with house and unit rents both jumping more than 5 per cent. House rents held at record highs on the northern beaches, the outer west, the Blue Mountains, Baulkham Hills and Hawkesbury regions.

The northern beaches was the only area to record a decline in apartment rents over the quarter, falling from a record high of $650 to $630.

“We talk about that ceiling price in the sales market … and I think a similar thing may be happening in the rental market,” Powell said.

“Budgets can only stretch so far, people will compromise on property type and then compromise on location. Other areas are offering much better bang for buck for tenants.”

Northern beaches local Heidi Malligan said it was “near impossible” to secure a rental, with tenants facing strong competition and high prices, with the median asking rent for houses up 9.5 per cent over the year to $1150 a week.

Malligan’s family moved into a four-bedroom house in Frenchs Forest this week, paying $20 above the advertised rate of $1700 to secure the keys.

“We had to adjust our expectations and be willing to offer more to secure a place,” Malligan said, adding she offered up to $80 above the advertised rate and to pay rent up to 12 months in advance, on other properties she missed out on.

Renting short-term, between selling and buying a home, she said she felt for long-term tenants and noted an undersupply of affordable housing meant poor quality properties were commanding high prices.

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“[I’ve] been at properties that were just absolutely abhorrent, there was one so full of mould and leaks, that the agents were apologising, they didn’t want to show it … and that was asking top dollar,” she said.

In the eastern suburbs, which recorded the strongest annual growth for houses (14.3 per cent) and units (11.9 per cent), more tenants were offering to pay rent in advance, and to pay above the asking price, said property manager Shona Armstrong-Smith, director of Century 21 Armstrong-Smith.

Demand was back to pre-pandemic levels, and now even stronger for some properties, with homes typically seeing five applications after a single viewing.

“Even smalls studios that weren’t all that popular [last year] because people wanted to have more space ... are now finding tenants relatively quickly,” she said.

Those hoping the cooling conditions seen in the sales market would flow through to the rental market may be left disappointed, with independent economist Saul Eslake saying while prices were predicted to soften this year, as interest rates rise, it would not affect rising rents.

“There is not much connection in my view between property prices and rents,” Eslake said.

“If you look back at late 2017 to mid-2019, prices went down in Sydney and Melbourne but that had no impact because there were no falls in rents during that period.”

Rents would rise when demand was high and supply low, he said.