Almost a third of Sydney and Melbourne rents are being slashed, as tenants gain more power in the market

• Rents are being slashed across Australia's capital cities as COVID-19 changes upend the market.

• One in three Sydney and Melbourne rentals have been discounted in recent months, according to Domain analysis.

• The change has been attributed to job losses, paused migration, increased housing stock and dwindling demand.

• Visit Business Insider Australia's homepage for more stories.

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For the first time in a long time, renters have a bit of power in Australia's capital cities. So much so that landlords have had no choice but to shave asking prices on nearly one in three Sydney and Melbourne homes, according to the latest Domain data.

"It's really quite remarkable seeing the jump in the number of properties being discounted in such a short space of time," senior research analyst Nicola Powell told Business Insider Australia.

At the peak of the pandemic around 30% of all properties on the market were discounted, as median rents were slashed by 6.4%. However even in May, the median rent was 5.6% lower, and more than 27% of properties had their asking rents reduced.

The rapid shift to a tenants market has been fuelled by the pandemic and its many associated restrictions.

The biggest factor has likely been the closing of Australia's borders, which both kept tourists and international students from entering the country, and in some cases would have seen those already here return home.

"The migration tap has been turned off and it's really changed market dynamics as short-term rentals are converted back into long-term accommodation and increase the amount of stock available," Powell said.

"International students meanwhile haven't arrived as they usually do while domestic ones may have simply chosen to stay home with their parents as learning moved online."

The "mass exodus" has been obvious particularly in inner-city areas, with vacancy rates suddenly spiking in the Melbourne and Sydney CBDs, as well as those areas popular with short-term visitors such as Bondi. As Airbnb guests disappeared overnight, a flood of short-term accommodation has resurfaced on the market.

It's seen Sydney lead the discounting wave, with nearly 40% of its city and eastern suburbs homes in April, and more than one third in May, go for less.

Around one in three inner Melbourne rentals were discounted last month, alongside one in four Perth, Brisbane and Hobart homes, with median rents falling between 4% to 6%.

For Hobart, constrained by the size of the city and an undersupply of housing, it has marked an extraordinary turnaround.

"Tasmania has seen some of the largest discounting, which is remarkable given Hobart had been the tightest rental market in the country. It's a real indication of how much things have changed."

Job losses, Powell notes, have also hit younger generations, for whom homeownership rates are already low.

"Anybody under the age of 29 has seen more job losses and more substantial wage cuts and obviously, that demographic is much more likely to be renting," she said.

"That's helped disrupt the market as many try to cut back on costs, moving back in with family or go looking for a cheaper place to live."

Interestingly, Powell anticipates the vacancy rate may begin to drop back down as domestic travel restarts and some landlords simply resort back to the Airbnb market.

"Demand for short term accommodation is certainly not going to be anywhere near what it was when international borders were open but what holidaying at home will help to do is absorb some of that lost demand," she said.

It's hardly going to be enough to push rents back up, however, with landlords and real estate agents likely to be forced to come to terms with this new tenants market. That should see them begin by advertising properties at reasonable levels in the first place.

"We're already seeing discounting rates drop from April and I think that'll continue as properties are priced more appropriately for the current market," Powell said