Is co-living oversupplied in Australia, or is there still demand?

Answering: Is co-living oversupplied in Australia, or is there still demand?

Estimated reading time: 8 min read

The fear is buying in just as everyone else does, and being left with the empty rooms. On the current data, that fear does not match the market. Australia is not oversupplied with rental housing, and co-living sits inside the tightest part of that shortage. SQM Research recorded a national residential rental vacancy rate of 1.2 per cent in April 2026, with 35,258 dwellings vacant nationally, roughly half the lower bound of the 2.5 to 3.5 per cent range that historically signals a balanced market. The cities where co-living is most active, Adelaide and Perth, were tighter still at 0.7 and 0.6 per cent. These are point-in-time figures that can and do move month to month, but they describe a market with a shortage of rental homes, not a glut.

If you are weighing a co-living purchase, the worry is rational. You have probably read that the boom is over, that supply has caught up, and that the smart money has already moved on. The honest response is to look at what the rental data actually says right now, name where it could change, and then decide. This guide does that. The Harmony Group’s role is to give investors the real demand picture before they commit, not to talk anyone into a purchase.

Key Insights

• SQM Research put the national rental vacancy rate at 1.2 per cent in April 2026, with Adelaide at 0.7 per cent and Perth at 0.6 per cent, all well below the 2.5 to 3.5 per cent that signals a balanced market.
• The National Housing Supply and Affordability Council’s 30 April 2026 report estimated around 980,000 new homes against a 1.2 million Housing Accord target, a structural shortfall that sits beneath, not above, current demand.
• Co-living demand is driven by working renters seeking affordable, well-located rooms, not students alone, which is why the team has held occupancy above 98 per cent historically through specialist management.

Keep reading for full details below.

Table of Contents

• The Claim: Co-Living Is Oversupplied and Past Its Peak
• The Evidence: What the Vacancy and Supply Data Show
• The Reality by City: Melbourne, Adelaide, Perth, Brisbane
• What Genuinely Could Change the Picture
• What It Means for an Investor Now

The Claim: Co-Living Is Oversupplied and Past Its Peak

The “oversupply” story runs roughly like this: co-living got popular, everyone piled in, build numbers caught up with demand, and anyone buying now is arriving late to a crowded market. It is a reasonable thing to fear, because it has happened in other property niches. The question is whether the rental data supports it for co-living in Australia in 2026. Set against cited figures, most of the common claims do not hold up.

The “it’s oversupplied” claim	What the cited evidence shows
“There are too many rentals now, so vacancies are rising back to normal.”	National vacancy was 1.2 per cent in April 2026, roughly half the lower bound of the balanced 2.5 to 3.5 per cent range (SQM Research).
“Supply has caught up with demand.”	The Housing Supply and Affordability Council estimated around 980,000 new homes against a 1.2 million Accord target on 30 April 2026, a shortfall, not a surplus.
“Co-living was a student fad and student numbers have peaked.”	Demand is led by working renters priced out of whole-house rentals; the Council reported the share of median income needed to pay a new lease hit an all-time high of 33 per cent.
“Rents are softening, so the income case is gone.”	SQM Research reported asking rents up 7.3 per cent year-on-year nationally in April 2026, with the combined capital city average at $794.54 per week.

None of this is a forecast, and none of it is a promise. It is a snapshot of where the rental market sat in April 2026. But it does mean the oversupply claim has to argue against the data, not from it. For the Melbourne-specific version of this debate, see whether co-living is oversupplied in Melbourne or an opportunity.

The Evidence: What the Vacancy and Supply Data Show

Two data sets matter here. The first is vacancy, which measures whether rental homes are sitting empty. The second is supply, which measures whether enough new homes are being built to meet demand. On both, the picture in 2026 points away from oversupply.

On vacancy, SQM Research recorded a national rate of 1.2 per cent in April 2026, with 35,258 dwellings vacant across the country. That was a small rise from 1.0 per cent in March 2026, which SQM had described as the tightest reading in about twelve months and a sign of continued structural undersupply rather than a temporary fluctuation. A move from 1.0 to 1.2 per cent is a market easing slightly off an extreme, not a market filling up with empty homes. Anything below the 2.5 to 3.5 per cent balanced range still describes a shortage.

On supply, the National Housing Supply and Affordability Council’s State of the Housing System 2026 report, released on 30 April 2026, estimated around 980,000 new homes could be delivered against the 1.2 million-home Housing Accord target. The same report noted the share of median household income needed to pay rent on a new lease had risen to an all-time high of 33 per cent. A market building fewer homes than its own target while rent-to-income pressure hits a record is not a market with too much housing. The demand for affordable, well-located rooms, much of it from working renters rather than students, is part of why worker demand keeps co-living rooms occupied in Melbourne.

The Reality by City: Melbourne, Adelaide, Perth, Brisbane

National averages hide a lot, so the city splits matter. In SQM Research’s April 2026 data, the cities where co-living is most active were among the tightest in the country.

Adelaide and Perth were the standouts, at 0.7 and 0.6 per cent respectively. These are among the most constrained rental markets in Australia, where a vacancy rate below 1 per cent means almost no slack for a tenant looking for a home. Adelaide’s combination of low vacancy and relative affordability is why the team treats it as a serious co-living market, covered in Adelaide’s low vacancy and co-living investment case.

Brisbane sat at 0.8 per cent in the same April 2026 reading, also well inside shortage territory. Melbourne, at 1.5 per cent, was the most balanced of the major capitals and slightly above the national average, while Sydney was at 1.3 per cent. Even Melbourne and Sydney, the “loosest” of these markets, sat well below the 2.5 to 3.5 per cent that would signal balance. None of the four cities where co-living concentrates was anywhere near oversupplied on this data. How yields have historically tracked across these markets is set out in co-living yields across Melbourne, Adelaide and Perth, which the team frames as historical and potential rather than assured.

What Genuinely Could Change the Picture

An honest demand case names its own risks. The current data is reassuring, but it is current, and several things could shift it. It is worth being specific about them rather than waving them away.

• A surge in new supply. If construction accelerated sharply, particularly of shared and affordable housing in the same locations, vacancy would loosen. The Council’s own forecast of around 980,000 homes against a 1.2 million target suggests this is not the near-term trajectory, but build rates can change with policy and finance conditions.
• A sustained fall in migration. A large part of rental demand is population-driven. A sharp, lasting drop in net overseas migration would reduce the pressure that currently keeps vacancy low.
• A change in renter affordability. Co-living demand is partly a response to whole-house rents becoming unaffordable. If wider rents fell materially, some renters might return to standard tenancies. The Council’s record-high 33 per cent rent-to-income figure suggests the opposite pressure for now.
• Local oversupply in a single suburb. National and city data can be healthy while one pocket is overbuilt. This is why site-level assessment, not headline figures, decides whether a specific property stacks up.

These are the levers that would move the demand picture. None of them is flashing in the current data, but a careful investor watches them rather than assuming today’s vacancy rate is permanent.

What It Means for an Investor Now

For someone worried about buying into a fad at its peak, the data offers a measured reassurance rather than a green light. The rental market in April 2026 was tight, not loose, and the cities where purpose-built co-living concentrates were tighter than the national average. The structural supply shortfall the Council describes sits beneath demand, not above it. On the cited figures, the “oversupplied and past its peak” claim is not what the market is showing.

That does not make any individual property a good buy. Demand can support a market while a specific site still fails on location, design or price. The Harmony Group works only with purpose-built, new-build co-living, never converted houses, and assesses each site before recommending it. Across the team’s delivered work, occupancy has historically held above 98 per cent through specialist management, and the team draws on a research partnership with SQM Research to read demand at the local level. These are historical results and past performance is not a guide to future returns, but they show what watching demand closely is meant to protect against: the empty rooms you were worried about.

If your real question is whether demand is fading before you commit, that is exactly the question to bring to the team. The Harmony Group’s job is to give you the current demand picture, with its risks named, so you can decide with eyes open. For a deeper look, visit The Harmony Group.

Frequently Asked Questions

Q: Is co-living oversupplied in Australia right now?

A: Not on the current data. SQM Research recorded a national rental vacancy rate of 1.2 per cent in April 2026, roughly half the lower bound of the 2.5 to 3.5 per cent that signals a balanced market, and the cities where co-living concentrates were tighter still. These are point-in-time figures that can change, but they describe a shortage of rental housing rather than an oversupply.

Q: Which cities have the lowest rental vacancy for co-living?

A: In SQM Research’s April 2026 data, Perth was tightest at 0.6 per cent, followed by Adelaide at 0.7 per cent and Brisbane at 0.8 per cent. Melbourne, at 1.5 per cent, was the most balanced of the major capitals but still well below the balanced range. Figures are current and may shift in later readings.

Q: What is driving co-living demand if not students?

A: A large share of demand comes from working renters priced out of whole-house rentals. The National Housing Supply and Affordability Council reported on 30 April 2026 that the share of median household income needed to pay a new lease had reached an all-time high of 33 per cent, which pushes renters toward affordable, well-located rooms.

Q: Could co-living become oversupplied later?

A: It could, if new supply surged, migration fell sharply for a sustained period, or wider rents dropped materially. None of these is evident in the April 2026 data, and the Council’s supply forecast points to a continued shortfall, but demand conditions are current and worth monitoring rather than assuming.

Want to Learn More?

The Harmony Group’s team brings specialist experience across more than 200 delivered co-living projects and over $810 million in projects, approaching a billion. The approach is educators-first: current data, named risks, and purpose-built new-build assets only. The team reads demand at the local level through a research partnership with SQM Research before recommending any site.

Citations

• “SQM Research National Vacancy Rates, April 2026”: Analysis of SQM Research’s April 2026 release (reported 12 May 2026) records a national rental vacancy rate of 1.2 per cent with 35,258 dwellings vacant, city splits of Perth 0.6 per cent, Adelaide 0.7 per cent, Brisbane 0.8 per cent, Sydney 1.3 per cent and Melbourne 1.5 per cent, a balanced range of 2.5 to 3.5 per cent, and asking rents up 7.3 per cent year-on-year at a combined capital average of $794.54 per week. propertyinvestmentprofessionals.com.au
• “SQM Research National Vacancy Rates, March 2026”: Analysis of SQM Research’s March 2026 data records a national vacancy rate of 1.0 per cent, described as the tightest reading in approximately twelve months and a sign of continued structural undersupply rather than a temporary fluctuation. propertyinvestmentprofessionals.com.au
• “State of the Housing System 2026, National Housing Supply and Affordability Council”: The Council’s report, released 30 April 2026, estimated around 980,000 new homes against the 1.2 million-home Housing Accord target and reported the share of median household income needed to pay rent on a new lease rose to an all-time high of 33 per cent. https://nhsac.gov.au/news/state-housing-system-2026

General information only. The Harmony Group provides general information about property and co-living investment, not personal financial, tax or legal advice, and does not hold an Australian Financial Services Licence (AFSL). It does not account for your objectives, financial situation or needs, so consider its appropriateness and seek advice from a licensed financial adviser, accountant or the ATO before acting. Vacancy, rental and supply figures are point-in-time data current at the dates stated and may change. Past performance is not a guide to future results and historical figures may not be repeated.