Property investment loses its shine as stocks surge – study

Brits are being urged to rethink their wealth-building strategies after a study reveals that the UK’s property investment golden era is over.

The findings from asset manager Rathbones Group shows that residential property has lost its edge, with stock markets delivering far superior returns since 2016.

Its research, ‘Don’t Bet the House‘, looks at housing and equity performance over the past century.

It found that UK house prices have barely matched inflation, growing at a modest 3.7% annually since 2016.

In London, once a hotspot for property gains, the situation is bleaker, with prices rising at just 1.3% per year, lagging inflation by 2.2%.

Stocks better than property

The firm’s head of asset allocation, Oliver Jones, said: “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.”

Property was key to wealth

Rathbones says that the housing market’s poor performance marks a sharp departure from the 1980s to mid-2010s, when property was a cornerstone of wealth creation.

That’s when house prices soared by 6.7% annually, with London seeing even steeper increases at 8.5%.

However, the report suggests that younger generations face a different reality, with housing no longer a reliable path to wealth.

In contrast, stock markets have surged and the study shows that £100 invested in property in 2016 would be worth £134 by 2024.

The same amount in a diversified portfolio of 25% UK and 75% international equities would have grown to £174.

For London property, the figure is even lower, at just £111.

Affordability is an issue

The study also notes a long-term trend in housing affordability and from 1910 to the late 1990s, house prices typically stood at four times average annual earnings.

Since 2000, this ratio has doubled, reaching as high as eight times earnings, making homes significantly less affordable for the average buyer.

Rising mortgage rates, driven by global instability and inflation, have further eroded affordability, dampening demand for buy to let properties and holiday homes, the study states.

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