Apartments in the harbour city are now $130 a week more than the next closest capital city, Canberra, where the cost of renting an apartment is $420.
Mr Cunningham said he had “definitely” seen families considering apartments instead of houses.
But he noted there was a two-speed market where new apartments were asking for high rents but older, smaller apartments were struggling to find tenants.
Founder of tenant’s advocacy site Don’t Rent Me, Antony Ziebell, also believed apartment rents had been pushed up by the type of supply coming onto the market.
“I would blame unsuitable apartments being built en masse and rented at prices which are focused on maximising returns and sale prices, rather than the kind of homes we need,” Mr Ziebell said.
“The supply numbers the government boasts about largely include an enormous amount of one bedroom units [which is] unsuitable housing for most,” he said.
Chris Johnson, chief executive of developer lobby group Urban Taskforce, said it was not surprising smaller apartments were popular with developers and investors, as Sydney’s price per square metre range for an average apartment was $10,000.
“Building a smaller apartment is the most fundamental way to reduce price point,” Mr Johnson said.
But he said it wasn’t developers but onerous design standards that were keeping prices higher.
“Part of the problem is that we have got very high design standards set by [the government] and this keeps prices high in NSW compared to Victoria … if you built a two-bedroom apartment [under Victorian standards] you’d save $150,000,” he said.
Typically, the more an investor pays for a property the more they will expect in rent return to ensure they can afford to hold the property.
Domain Group chief economist Andrew Wilson had predicted apartment rents would “catch up” to house rents for the past six months.
“A Sydney tenant has to pay 30 per cent more than those in Melbourne and they have similar incomes,” Dr Wilson said.
For the first time on record it now costs as much to rent an apartment in Sydney as it does a house, with the median cost for both at $550 a week.
Despite record apartment building, Sydney unit rents jumped $20 a week over the June quarter, the latest Domain State of the Market Report shows.
This has defied the expectations of property commentators who anticipated the record apartment building boom would cause rents to fall.
But this jump in rents might be because of, rather than despite, the surge of new supply onto the market, Tenants Union of NSW senior policy officer Ned Cutcher said.
“I think it’s the outcome of the wrong kind of supply being pushed into the market. Development is driven by what investors want rather than what households need,” Mr Cutcher said.
“Higher priced apartments are being built where traditionally affordable homes were, at increasing densities and this is what you get.
“I’ve always had my doubts about claims that supply is the solution.”
He warned the apartment market was increasingly catering to a “fairly narrow idea” of who was a renter – with the properties mostly suited to young professionals unable to buy but still wanting an inner-city lifestyle – rather than those who really needed the supply.
“The biggest cohort in the rental market is families with children who are 40 per cent of renters,” Mr Cutcher said.
Many older-style inner and middle-ring houses have been redeveloped into more expensive apartments with the modcons, Real Estate Institute of NSW president John Cunningham said.
Now, the majority of rental houses are older homes in the middle-ring and new housing estates on the fringe.
“There’s a massive shortage of houses leaving families no choice,” he said.