But local rental markets show residents are still struggling to buy property in Sydney and Melbourne.
The Mercer Cost of Living Survey covers 211 cities across five continents.
It measures the comparative cost of housing, transport, food, clothing and entertainment.
The 2014 survey shows Sydney has dropped from a ranking of 9 last year to 26.
Melbourne came in 33rd with Brisbane and Canberra falling outside the top 50.
Changes in the value of the Australian dollar against the US dollar have been credited for the drop in the rankings.
Mercer's Garry Adams says the results of the survey do not mean that Australian cities have become cheaper to live in.
"It does mean that in relative terms our Australian cities have become more cost competitive locations for companies to relocate expatriates too. So the business case to put those people in Australia has strengthened this year as our costs have come down."
Australian cities have been driven down the list due to the strengthening of the Chinese yuan and currencies in Western Europe against the U-S dollar.
The Victorian Council of Social Service CEO, Emma King, says the cost of living in Australia is rising faster than wage growth.
"A lot of Australians are doing it incredibly tough at the moment, what we're really seeing here is growing inequality in Australia. We're seeing incomes that are fundamentally stalled. We're seeing some significant increases in cost of living. For example when we look at utility bills, we look at the cost of education, we look at the cost of houses and fundamentally the cost of living we're seeing all of those prices go up."
Meanwhile a quarterly report from the Australian Property Monitors shows that asking rents in Melbourne and Sydney have increased.
Nationally, rental growth for units is outperforming houses in most capital cities.
In Sydney, unit rents have reached $500 per week.
Senior economist at Australian Property Monitors Andrew Wilson says it's not unexpected.
"I think there's an affordability issue at play here. I think those $500 dollar-a-week rents we had for houses in Sydney for quite a while reflected that ceiling that incomes couldn't match the asking price for rents. I think we've seen the economy pick up to the point now where people can afford to pay more."
Unit rental in Melbourne is just ten dollars less than for a house at $370 per week.
Hobart also experienced strong growth in unit rentals but house rents remained flat in the city.
A similar story in all other capitals saw flat or declining rents for houses and units.
Emma King from the Victorian Council of Social Services says many Australian families are struggling to break into the housing market.
"We are seeing people rent for longer and I think we're juxtaposing that against the great Australian dream of owning your own home. Which really has led to pushing people out to a number of those outer suburbs so they can achieve that so called dream and at the same time though we're seeing a number of peole who are renting and renting for much longer. And we are seeing a disproportionate increase in the cost of rental properties."
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