The availability of rental homes in Melbourne continues to improve, July's report from the Real Estate Institute of Victoria shows.

The city's rental vacancy rate increased to 2.5 per cent from 2.2 per cent in June and was now well above the average for the past 12 months of 1.75 per cent.

REIV Communications Manager Robert Larocca said “the reduction in population growth and increase in construction of new dwellings is now beginning to provide easier conditions for renters.

“The availability of rental homes has been very poor for the past six years and renters will welcome the recent increase in the vacancy rate. The fact that the vacancy rate is still below 3 per cent indicates that there are still too few rental homes,” he said.

The highest level of vacancies is in the outer suburbs, where 3.2 per cent of rental homes are vacant. This is a substantial improvement from June, when the vacancy rate was 2.1 per cent.

In the middle suburbs the vacancy rate is 2.6 per cent – a small improvement from June, when it was 2.1 per cent – and in the inner city there has been a slight tightening from 2.4 to 2.2 per cent.

Rental homes in regional Victoria are still scarcer than in the metropolitan area, with a vacancy rate of 1.6 per cent compared with 1.5 per cent in June.

Of the three main regional centres, Bendigo still has the tightest rental market, with a vacancy rate of only 0.3 per cent, down from 0.5 per cent in June. In Ballarat the vacancy rate was stable at 0.8 per cent and in Geelong there was a minor reduction from 2.4 to 2.1 per cent.