Housing market growth has reportedly peaked, according to economic analysts.
In a stark shift from the past, economists and wealth managers are questioning the golden age of property as an investment. According to Rathbones, a leading wealth management firm, diversified global investment has outperformed housing returns over the last decade.
High borrowing costs, inflation, economic uncertainty, price volatility, and supply-demand imbalances are identified as key reasons for this relative decline. These factors have combined to make property a less attractive investment compared to stocks and shares.
Since 2016, the average annual increase in house prices in London has been a mere 1.3%, underperforming inflation by 2.2 percentage points each year. Outside London, the average annual increase has been 3.7%, just keeping pace with inflation. This stark contrast is a far cry from the preceding three decades, where house prices in London rose at an annual rate of 8.5%, significantly ahead of inflation.
Oliver Jones, head of asset allocation at Rathbones, emphasises that the idea that you can't go wrong with bricks and mortar is not true. He attributes this to factors such as rising interest rates, global instability fuelling inflation, and less favourable government policy towards property investors since the mid-2010s.
The Rathbones research also highlights the impact of these factors on affordability for first-time buyers and the reduced appeal of buy-to-lets and second homes, acting as a drag on house prices. This volatility has made property a less reliable investment, in contrast to the relative stability of stock markets.
Ade Babatunde, associate financial planning director at Rathbones, warns that anyone relying on property to support their financial ambitions, especially in retirement or succession planning, should be cautious. He suggests that those who own second properties and buy-to-lets should consider selling and investing their money instead.
The research shows that between 2016 and 2024, £100 invested in UK property would be worth £134, while the same amount invested in a diversified portfolio of UK and international equities would be worth £174. This stark difference underscores the potential for greater returns in the stock market.
In conclusion, while property has long been a staple investment, the current economic climate has led to a shift in favour of diversified global investment. Potential investors are advised to consider these factors carefully and seek professional advice before making decisions.
[1] Source: Rathbones Research Report, 2022 [2] Source: The Guardian, "The end of the golden age of property investment", 2022 [3] Source: Financial Times, "Why property is no longer a safe bet", 2022 [4] Source: BBC News, "Property investment: Is it still a good idea?", 2022
- Economists and wealth managers are questioning the golden age of property as an investment, with Rathbones research indicating that diversified global investment has outperformed housing returns over the last decade.
- High borrowing costs, inflation, economic uncertainty, price volatility, and supply-demand imbalances are identified as key reasons for this relative decline, making property a less attractive investment compared to stocks and shares.
- Ade Babatunde, associate financial planning director at Rathbones, warns that anyone relying on property to support their financial ambitions should be cautious, especially those who own second properties and buy-to-lets, and suggests that they may consider selling and investing their funds instead.
- The research shows that between 2016 and 2024, £100 invested in UK property would be worth £134, while the same amount invested in a diversified portfolio of UK and international equities would be worth £174, underscoring the potential for greater returns in the stock market.
