The latest Domain Rent Report, released on Thursday, shows that the median rent for a unit jumped 24 per cent to A$620 per week in the year to March, the fastest annual increase on record.
Unit rents also recorded the fastest quarterly growth, increasing by 6.9 per cent - or $40 per week - in the first three months of 2023.
House rents hit a record of $660 per week, following an increase of $10 per week - in the March quarter.
Downtown and the Inner South had the biggest annual increase in units, up 31 per cent, while the Inner Southwest, Parramatta, Inner West and Eastern Suburbs also saw increases of more than 25 per cent.
Experts say a sudden pick-up in rental demand from locals and overseas immigrants amid low vacancy rates has pushed up rents, which will continue to rise amid continued demand and a lack of sufficient available properties.
Dr Nicola Powell, Domain's head of research and economics, said overseas migrants and locals looking for affordable rents were driving rents higher than ever.
"This is the seventh consecutive quarter of unit rent growth and the longest period of unit growth on record," Powell said.
"Most people coming from overseas have historically gone to Sydney and Melbourne. This is putting real pressure on the rental market in Sydney and Melbourne and that's why we're seeing such a tight situation," she said." She noted that locals are also flocking to the more affordable rental market.
This comes as Reserve Bank governor Philip Lowe warned that rental inflation is likely to remain quite high for some time.
In a speech to the National Press Club on Wednesday, he said that the expansion of housing supply was likely to be fairly modest as people work from home, demand for floor space had increased and population growth had accelerated now that international borders had reopened.
Lowe is concerned about the pressure on renters, as financial advisers have been receiving calls from financially stressed renters.
Matthew Hassan, senior economist at Westpac, said the record unit rent growth was driven by a pick-up in demand following the easing of pandemic restrictions.
"The growth on the demand side has been very strong. Last year, we recorded a flow of close to 400,000 people, most of them into Sydney and Melbourne," Hassan said.
Hassan said the surge in demand was akin to a "whiplash" as rents had turned around to make up for past declines.
He said households able to pay more would drive up rents, squeezing lower and middle income earners even more.
"We've heard a lot about bids for rentals. It says something about the ability of tenants in higher rental properties," Hassan said.
"We may not have reached the worst of the affordability squeeze, we may have just started and it's going to get worse.
"This tight rental market isn't really over and rents are likely to continue to go higher."
Chris Jones, a renter in Bondi who said he wanted to move from the eastern suburbs to the Inner West to find a more affordable home, said rents were rising everywhere.
"I've found the rents in Bondi to be astronomical ...... For a semi-decent one-bedroom flat, you're currently talking about $800. You seem to be able to get a lot more for it (in the Inner West). That said, it seems to be $100 or $150 a week more than usual," says the 40-year-old.
He has seen "bad, poor quality" Bondi units with shared laundry rooms that cost $750 a week, as well as newer single rooms that cost $795.
"I have stayed in bigger hotel rooms. Seriously, it's tiny and if you want a TV you have to put it on the kitchen counter ...... There were 100 people waiting in line."
Jones said he missed out on the "perfect" unit at Bondi because someone was overpaying by $50. NSW has banned agents from soliciting higher bids, but not tenants.
Leo Patterson Ross, chief executive of the NSW Tenants Union, said rising rents were a vicious cycle that was forcing low- and middle-income families out of once-affordable areas of Sydney, while others were stuck in unsuitable homes.
He urged the state government to do more to alleviate the rental crisis, including increasing the supply of affordable rental accommodation and capping rent increases as has been done in the ACT. The NSW Labor government plans to scrap no-cause evictions, create a Rent Commissioner and increase the supply of housing.
There is nothing in the plan to reduce rents relative to income, particularly for those on low and middle incomes," he said.
ANZ senior economist Adelaide Timbrell also said there would be little relief for tenants in the short term as the rental markets in Sydney and Melbourne remained very tight.
"Housing construction hasn't kept up with demand so there aren't enough houses and those that are available are becoming short-term rentals, which is taking houses out of the market," Timbrell said.
"There will be a deterioration in availability in the short term, so there's no getting away in the short term from the challenge of Australian residents demanding more housing and more housing not coming online."
