Rates fell to 0.6 per cent in September - the lowest rate since November 2011 - with just 14 vacant rentals available in the 3400 postcode.

It is an extension of a region-wide trend.

The vacancy rate hit a record low for western Victoria at 0.9 per cent - the region's equal lowest vacancy rate on SQM's available database, which goes back to 2005.

Harcourts Horsham principal director Mark Clyne attributed the low rates primarily to tightened banking laws which make it more difficult for buyers to secure home loans.

"This was always going to come to a crunch point," he said. "Investors haven't been actively buying properties for three or four years, because the government tightened up laws after the banking inquiry.

"It's resulted in a real rental shortage."

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Mr Clyne said there had also been more people moving to the region and buying or building homes, rather than buying investment properties.

"This trend started well before coronavirus," he said.

"We've got a lot of things happening here in the grain industry, protein plants, and a strong agricultural sector.

"Most industries here are looking for more employees or workers, which makes renting a competitive market.

"With COVID as well, investors can't get out from Melbourne to look at properties and potentially buy. Horsham is still seen to be good value for money, but they can't get out here at the moment."

Simon Pressley, head of research at property investment firm Propertyology, said a vacancy rate below 1 per cent was "crisis territory".

He said it "tipped the scales" in favour of landlords, giving more power to increase rent.

Mr Pressley agreed that stricter loan laws were the primary reason for the low vacancy rate.

He added that the fallout of COVID-19 may also have exacerbated a long-term trend.

"A lot of people looking at real estate at the moment, they're seeing changes they didn't expect and they are automatically saying, 'That's because of COVID.' It's probably partly to do with that, but in reality, Horsham has had low vacancy rates for a couple of years, as has most of regional Victoria," he said.

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In contrast to regional Victoria, the rental vacancy rate in Melbourne hit an historic high of 3.8 per cent in September - the highest since December 2011.

"Well before COVID, there has been an increasing number of people relocating away from the big cities," Mr Pressley said.

"Housing affordability is a big part of it - but now if you add in the COVID effect, it is a different layer of complexity.

"During this lockdown, 25 million Australians have had more time to think about what they prioritise. A lot have people have realised they put a value on space, clean air, less congestion.

"Working from home is another factor - people can go where they want, and go where it's affordable, rather than staying in the big cities.

"So it's definitely having an effect, but it's not the initial cause."

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