“The idea that you can’t go wrong with bricks and mortar just isn’t true. The data shows that diversified global investment has put to shame returns from housing over the last decade, and we believe this trend will continue”
– Oliver Jones – Rathbones
UK wealth and asset manager, Rathbones, has analysed investor returns from both the stock market and the housing sector over roughly the past century. Their report, “Don’t Bet the House”, suggests that the property boom, which lasted from the 1980s until the mid-2010s, is now behind us.
Since 2016, UK residential property prices have barely kept pace with inflation, rising at 3.7% per year, according to Rathbones. London, once the standout performer, has seen house prices increase by only 1.3% annually, underperforming inflation by 2.2% each year.
This contrasts sharply with previous generations, particularly Baby Boomers born in the 1950s and 1960s, who experienced a ‘golden age’ of property ownership. Between 1980 and 2016, UK house prices increased by an average of 6.7% annually, and in London, the rise was even higher at 8.5%, well above inflation. Their children no longer enjoy the same opportunities to build wealth through housing.
Instead, since 2016, stock markets have outperformed property. Rathbones found that £100 invested in UK property in 2016 would be worth £134 in 2024. However, the same amount placed in a portfolio composed of 25% UK equities and 75% international stocks would have grown to £174. In London, £100 invested in property would now be worth only £111.
Oliver Jones, head of asset allocation at Rathbones and lead researcher, explained, “The idea that you can’t go wrong with bricks and mortar just isn’t true. The data shows that diversified global investment has put to shame returns from housing over the last decade, and we believe this trend will continue.”
He added, “The earlier boom in house prices was fuelled by factors which no longer hold. The huge decline in interest rates from their generational high in the early 1980s won’t be repeated. Homebuilding is rising after decades of very low rates, and government policy has become progressively less favourable to investors in residential property since the mid-2010s. The idea that money is safest in houses simply is not true any more.”
Looking over a longer timeframe, Rathbones found that from 1910 to the late 1990s, average house prices hovered around four times the average annual earnings. After 2000, this ratio more than doubled, with prices reaching as much as eight times earnings, making property far less affordable for typical buyers.
Additionally, after decades of low interest rates, global instability has increased volatility in financial markets and pushed up inflation, which has in turn raised mortgage interest rates. This has affected affordability for many first-time buyers and reduced the appeal of buy-to-lets and second homes purchased with mortgages, especially those used for holiday lettings, acting as a drag on house prices.
Ade Babatunde, associate financial planning director at Rathbones, noted, “We’re being asked by many people who own second properties and buy-to-lets whether the time has come to sell up and invest their money instead. This research should be a wake-up call to anyone relying on property to support their financial ambitions, especially when thinking about retirement or succession planning. The old idea that property will always deliver is for the birds, and we strongly recommend taking advice.”