Australia's housing shortage will take time to unwind, with the rental market set to stay tight ahead of an expected gradual improvement as more homes enter the market and population growth decelerates, Commonwealth Bank of Australia said in a Thursday report.

Advertised rents across Australian capital cities are growing at a rate of 5.7% per year, and consumer price index rent inflation is expected to hover around 4% in 2027 before easing, according to the report.

CommBank senior economist Trent Saunders made a distinction between stopping a shortage from worsening and eliminating it entirely, saying that "even if construction rises enough to meet new demand, the shortfall accumulated over recent years remains."

Dwelling approvals are expected to rise sharply over the coming year, while completions should tick higher gradually in response to previous increases in building approvals.

Meanwhile, the national vacancy rate is forecast to edge up to about 2% by the close of 2027, which would mark an improvement from current levels but still be below the average of around 2.8% seen between 2015 and 2019, CommBank said.

Australia's most recent inflation data showed rental prices rising 3.6% in the 12 months to August, and the bank expects the rate to jump to around 4% during 2027 before easing toward 3.5% by the end of 2028.