Rents remain at record highs in every capital city despite the slowdown in price growth, Domain has found in its March-quarter rent report on Thursday.
Combined capital-city house rents rose 3.2 per cent over the year, the weakest annual rate in four years.
Unit rents grew at a slightly higher rate, coming off a lower base yet still recording their lowest March-quarter increase in four years.
A modest increase in supply was keeping a lid on price growth, said Domain's chief of research and economics Nicola Powell.
"While it's still not enough to fully meet demand, we can see that it's helping to rebalance some of the tightest rental markets," Dr Powell said.
"The affordability ceiling is also becoming increasingly apparent, with unit rents outpacing house rents in Sydney, Melbourne, Brisbane, Canberra and Hobart this quarter."
After years of surging prices, landlords have been limited in their ability to raise rents further as tenants reach their financial brink.
In response, many renters have been forced into larger share-house groups or remain in the family home for longer, reducing demand in the market.
Meanwhile, a slight pick-up in building completions and rising investor activity has boosted supply. But vacancy rates remain low, with less than two per cent of rental properties available in all capital cities.
"Despite a softening of growth, the data suggests Australia is still very much a landlord's market," Dr Powell said.
Signs suggest a substantial increase in supply is not coming any time soon.
The amount of new dwellings approved for construction fell 0.3 per cent in February to 16,606, the Australian Bureau of Statistics reported on Wednesday.
The housing industry is well behind par in reaching the federal government's target of 1.2 million new homes by 2029, which requires 20,000 new dwellings a month.
Despite the monthly fall, the trend for approvals is positive following an upwardly revised jump of 6.9 per cent in January, said AMP economist My Bui.
Easing material and labour costs have driven an upswing in housing sentiment among consumer and businesses, she said.
"Dwelling approvals are now running at a comparable pace to additional housing demand which is very welcomed," Ms Bui said.
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