Sydney is no longer the nation's most expensive capital city to rent a house according to a report showing rental prices dropping for the first time in 12 years.

Key points: Sydney average house rental prices are sitting $20 below Canberra, according to Domain Rental Report

Sydney average house rental prices are sitting $20 below Canberra, according to Domain Rental Report The cost of renting a unit also dropped to 2017 levels

The cost of renting a unit also dropped to 2017 levels Analysts say investors may look to other capital city markets in 2019

Canberra's house rental rates have surpassed Sydney after the average cost of renting a house in the NSW capital dropped 1.8 per cent in the last year, according to the Domain Rental Report.

Median rents in the Harbour City have dipped to $540 a week for houses, $20 less than Canberra, and $530 a week for units.

Domain senior research analyst Dr Nicola Powell said house rental rates were now on par with 2016 prices and could change the dynamic between renters and landlords.

"Sydney is no longer the nation's most expensive capital city to rent a house," Dr Powell said.

"We expect rental supply to increase further in 2019, putting tenants in the driver's seat.

"Tenants will find greater bargaining power as rising supply keeps pressure on rents, providing strong grounds to negotiate lease terms.

Unit rents were also declining and for the first time since Domain rental records began in 2004 have fallen for two consecutive quarters.

The cost of renting a unit is now at 2017 levels.

City Average house rent per week Average unit rent per week Sydney Down to $540 Down to $530 Canberra Up to $560 Up to $465 Melbourne Up to $440 Up to $410 Brisbane Up to $410 Up to $380 Adelaide Up to $380 Up to $310 Perth Up to $360 Steady at $300 Darwin Down to $500 Down to $400 Hobart Up to $420 Up to $380

Note: Rent prices are compared to the same time last year.

Despite the fall in Sydney, prices remain higher than the national average of $446 per week for houses, and $455 for units.

In the face of criticism for overdevelopment, Premier Gladys Berejiklian said the Government's biggest challenge is striking the "right balance".

"Yes we do need more supply in the right areas to bring down prices but we also need to be very careful to protect the local character of our communities," she said.

NSW Council of Social Services chief executive Joanna Quilty said government efforts to boost supply were welcome but social housing was lagging.

"We've got an increasing waiting list for social housing and we've got rising homelessness in this state," she said.

"The amount of social housing in New South Wales hasn't kept pace with population or with demand."

She is calling for the introduction of mandatory inclusionary zoning which means all new developments must include affordable housing for those on low incomes and income support.



'Definitely not the Hunger Games'

Belle Property Parramatta's head of property management Tamsin Wilson put the lower prices down to a combination of factors.

"It's an influx of properties being built, and then there are also less people moving to the area," she said.

"Vacancies are quite high — any properties that were leased four years ago but come back on the market are probably being listed at lower prices."

Ms Wilson warned renters not to be complacent.

"If the property is advertised at the right price you would still expect to see a lot of groups viewing it, but it's definitely not the Hunger Games anymore," she said.

"It's still a little bit competitive, but renters now have choice."



While this is welcome news for renters, Dr Powell said the fall could turn property developers off Sydney.

"Despite improved yields, we expect many investors will look to other capital city markets in 2019, with the prospect of short-term capital gains unlikely," she said.

"However, slowing interstate and overseas migration could offset this impact."