Climbing Housing Costs Could Prop Up Inflation for a While

Rents and other shelter costs are emerging as a major driver of overall consumer inflation, keeping it high at a time when many other sources are starting to ease.

Economists expect housing inflation to strengthen further before cooling off in the coming months, but are unsure of when relief will appear. This creates another challenge for the US Federal Reserve as it raises interest rates to reduce price pressures.

Overall annual inflation eased to 8.3% in August from 8.5% in July, according to the Labor Department’s consumer-price index. That reflected declines from the month before in prices for items such as gasoline, airfares and used cars, and slower price increases in other categories, such as groceries.

Housing was an outlier. Not only are shelter costs rising, they are climbing at an accelerating pace, accounting for a growing share of the overall inflation rate—about 25% of August’s rate, up from about 20% in February.

Shelter costs—comprising mostly rents and a gauge of home prices known as owners’ equivalent rent—rose 0.7% in August from the previous month, up from 0.5% in July. They rose 6.2% in August from a year before, up from 5.7% in July.

The price of housing “was always going to be a persistent boost to inflation this year,” said Omair Sharif, head of the advisory firm Inflation Insights LLC. “It has absolutely ticked up over the last three months and it is offsetting declines in things like airfares and hotel rates.”

Fed officials have raised interest rates this year at the fastest clip in decades to combat inflation, which hit a 40-year high in June. They are widely expected to lift rates by 0.75 percentage point after their two-day policy meeting concluding on Wednesday. That would be the third consecutive increase of that size.

Rising housing costs also increase the chances that the Fed will raise interest rates by 0.75 percentage point again at its November policy meeting, economists at Barclays wrote in a report for clients.

Economists and firms tracking private data expect housing inflation in the CPI to cool eventually because the rent increases they see in new leases appear to be slowing. That should show up in the CPI with a lag because of the way it is constructed, they say. Most of the time, most renters pay the same price every month, while those who renew their lease or sign new ones are more likely to see an increase. Private firms, such as Apartment List Inc., which tracks rental prices, record only the rent amounts in new leases.

By this method, the median US rent increased 10% in August from the previous year, down from a recent peak of 18% in November 2021, according to data from Apartment List.

The CPI’s rent component, in contrast, is estimated based on rents paid across the market, which includes rents raised months ago.

Home prices surged during the pandemic, boosted by low mortgage rates, changes in home-buying preferences, population trends and low inventories of homes for sale.

But government agencies don’t take home prices directly into account when calculating inflation because they consider a home purchase to be a long-term investment rather than a consumer good.

Instead, the CPI uses rents to create its estimate of homeowners’ housing costs—called owners’ equivalent rent—which calculates the imputed rent, or what homeowners would have to pay each month to rent their own house.

Because rents rose strongly over the past year, those increases are now feeding into the CPI and other inflation measures.

The private estimates offer hope that housing inflation in the CPI will slow at some point, said Igor Popov, chief economist at Apartment List.

“On the one hand there’s some confidence that the shelter component of CPI is not going to completely run away from us,” he said. “On the other hand, there’s a growing concern that in the meantime, the shelter component’s really propping up inflation at a time when these numbers are under a microscope.”

Mr. Sharif said shelter cost increases should begin to cool either in the fourth quarter of 2022 or the first quarter of 2023. Barclays economists say it will happen this fall. Brett Ryan, senior economist at Deutsche Bank, estimates the peak won’t come until the second quarter of next year.

Economists at the Dallas Fed said in a paper published last month that they see a lag time of up to a year and a half between when market rents start to fall and when that decline shows up in the CPI.

Melbourne is considered Australia’s most liveable city. In fact, Melbourne competes on the global stage, consistently ranking among Time Out’s top cities to live in the world and ranking fourth in 2025. Melbourne is a cultural mecca filled with arts, x, and the country’s best sporting events.

It’s the lifestyle factor that has seen Melbourne’s population grow by over 142,000 people over the 23/24 financial year, largely driven by overseas migration. With increased population comes increased demand for properties, particularly in the rental market.

Akin to Sydney’s Eastern Suburbs, Melbourne’s South Eastern suburbs, towards Bayside and the water, dominate the most expensive suburbs listed to rent across the Victorian capital.

In this article, we’ve examined the six most expensive suburbs to rent a house in Melbourne right now, according to property data analytics firm Cotality (formerly CoreLogic).

Brighton

Median purchase: $3.15m
Median rent: $1,353

Brighton is Melbourne’s most expensive suburb to rent a house, and it’s easy to see why. A blend of grand period homes and modern architectural builds line the wide, tree-filled streets. The suburb is synonymous with luxury, and rental properties—especially those close to the famed Brighton Beach and its iconic bathing boxes—are snapped up quickly. Vacancy rates sit at a tight 0.9 per cent.

The Neighbourhood

Brighton offers an enviable mix of a beachside lifestyle and convenient shopping and dining. With access to top schools like Brighton Grammar and Firbank, plus Church Street’s boutiques and the Royal Brighton Yacht Club, the Bayside suburb is the complete package for Melbourne’s high-end renters.

Malvern

Median purchase: $2.8m
Median rent: $1,313

Long known for its timeless Victorian and Edwardian homes, Malvern is a leafy inner suburb with prestige appeal. Many properties here are fully renovated period homes, featuring extensive gardens and original features that appeal to families and executives.

The Neighbourhood
Malvern boasts a refined atmosphere with a strong community feel. Glenferrie Road and High Street offer upscale cafes, boutiques, and grocers, while schools like De La Salle and St Joseph’s make the suburb particularly attractive to families.

Black Rock

Median purchase: $2.29m
Median rent: $1,253

Nestled along the Bayside coast, Black Rock has seen steady growth in both house prices and rents in recent years. Larger blocks and a quieter, more laid-back vibe than neighbouring suburbs make this a coveted spot for renters seeking both space and lifestyle.

The Neighbourhood
Black Rock is home to the picturesque Half Moon Bay and scenic cliffside walks. The suburb blends beachside charm with village convenience, offering local cafés, golf courses, and direct access to some of Melbourne’s best coastal trails.

Sandringham

Median purchase: $2.21m
Median rent: $1,199

Sandringham, next door to Black Rock, offers more of the same as its neighbouring suburb, at similar prices. Sandringham too ticks the box for laid-back waterside recreation, with the majority of homes in walking distance to the sand and charming village shops.

The Neighbourhood
This is a family-friendly suburb with a strong community vibe. Sandringham Village, with its mix of cafes, wine bars, and boutiques, sits just a short walk from the train station and beach. The area also offers excellent sporting facilities and parks. Sandringham Harbour is the local landmark, a popular destination for boating, fishing, and waterfront views from Sandringham Yacht Club.

Canterbury

Median purchase: $3.15m
Median rent: $1,179

Canterbury is the innermost Melbourne suburb on this list. It is considered one of Melbourne’s most prestigious suburbs, defined by grand family homes, generally over-the-top opulent new builds with French Provincial façades behind gated entries.

The Neighbourhood
Canterbury is anchored by the exclusive “Golden Mile” precinct and is surrounded by elite private schools such as Camberwell Grammar and Strathcona. Maling Road provides a quaint village feel, while the area’s lush green spaces complete the picture of prestige.

Hampton

Median purchase: $2.3m
Median rent: $1,171

It’s back to Bayside for the sixth and final suburb on the priciest rental areas in Melbourne. Hampton is not too dissimilar to Brighton, with a main High Street providing convenience and the beach rounding out the relaxed lifestyle found on the bay. The suburb has undergone significant gentrification, with many original homes replaced by contemporary builds.

The Neighbourhood
With a stretch of clean, family-friendly beach and the bustling Hampton Street shopping strip, Hampton has everything renters could want—from stylish cafes to gourmet grocers and boutique fitness studios. Its proximity to Brighton and Sandringham only adds to its appeal.

Melbourne’s Cheapest Suburb: Melton South

Median purchase: $460,000
Median rent: $430

On the opposite end of the spectrum, Melton South—roughly 40km west of the CBD—offers the most affordable rental market. With a median rent of under $450 a week, it’s less than a third of the weekly rent in Brighton. The suburb attracts families and first-home renters seeking value and larger land lots.

Melbourne’s Best Suburb: Toorak

Toorak is considered the Point Piper of Melbourne. Boasting even more billionaires than Sydney’s harbourside hotspot, Toorak is home to Melbourne’s most expensive houses, and reportedly Australia’s most expensive house sale if the 1860s Italianate mansion Coonac settles at over $130 million.

The suburb has some of the best educational institutions in Melbourne, as well as luxury homes on the Yarra, two train stations, and a central shopping precinct undergoing a full transformation with several mixed-use retail and residential developments. It is definitely the place to be.

Where is Melbourne’s most expensive suburb to rent a house?

As of May 2025, Brighton is Melbourne’s most expensive suburb to rent a house.

Where is Melbourne’s cheapest suburb to rent a unit?

As of May 2025, Melton South is Melbourne’s most expensive suburb to rent a house.

Where is Melbourne’s most expensive suburb to buy a house?

As of May 2025, Toorak is Melbourne’s most expensive suburb to buy a house.

Where is Melbourne’s most expensive suburb to buy a unit?

As of May 2025, Beaumaris is Melbourne’s most expensive suburb to buy a unit