The so-called golden age of investing in property appears to be over, say economists at a leading finance firm.
Experts at the wealth management company Rathbones have taken a detailed look at how house prices have performed compared to stocks and shares over the last hundred years. Their findings suggest that the era when bricks and mortar guaranteed impressive returns has now largely come to an end.
According to their research, the price of residential property since 2016 has struggled to outpace inflation. Over this period, property values have increased by an average of just 3.7 per cent each year, which means many homeowners have only seen modest real-terms gains.
The picture looks even less favourable in London, a region that historically led the way in house price growth. In the capital, average property prices have risen by just 1.3 per cent per year since 2016, which is significantly below the inflation rate.
In practical terms, this under-performance in London means property values have failed to keep pace with rising costs elsewhere. The analysis shows London house prices lagged behind inflation by around 2.2 percentage points annually during this period.
This marks a stark contrast to previous decades, when property owners benefited from remarkable increases in value. Rathbones points out that buyers who entered the market between the 1980s and the early 2010s were able to enjoy the strongest gains.
From 1980 to 2016, house prices grew at an average rate of 6.7 per cent each year across the UK. This rate comfortably outstripped inflation and provided steady returns for countless homeowners and landlords alike.
London, in particular, saw even more striking figures during this time. House prices in the capital surged by an average of 8.5 per cent annually, offering some of the best returns on property in the country.
For many investors and homeowners, these were the years when property seemed like a near-certain path to building wealth. Rising demand, low interest rates and favourable economic conditions combined to drive prices ever higher.
Today, however, the market looks very different. Slower growth, higher interest rates and changing regulations have all contributed to cooling the once-booming property sector.
Economists now warn that relying on property alone as a primary investment strategy may no longer deliver the same rewards seen in previous decades. Instead, they suggest diversification – such as including stocks, bonds and other assets – could offer better long-term results.
These findings come as a reality check for those still hoping for double-digit annual growth in property values. While housing can remain a stable part of an investment portfolio, the days of rapid gains appear to be behind us.
It’s also worth noting that regional variations remain, and certain areas may still outperform national averages. However, the general trend shows a cooling market compared to the high-growth decades of the past.
For prospective buyers and investors, this shift means expectations should be adjusted. Property is still valuable, but it may no longer be the powerhouse of growth it once was.
How do stocks and shares compare to property?
Since 2016, stock markets have outperformed property prices by quite a margin, according to new research.
Economists at Rathbones found that if you had invested £100 in UK property back in 2016, it would be worth around £134 by 2024. This represents only modest growth over eight years.
By comparison, the same £100 placed in a diversified portfolio made up of 25 per cent UK equities and 75 per cent international stocks would have grown much more, reaching £174 over the same period.
For those who invested specifically in London property, the numbers look even less encouraging. On average, £100 invested in the capital’s housing market in 2016 would have increased to just £111 by 2024.
Oliver Jones, head of asset allocation at Rathbones, challenged the long-held belief that “you can’t go wrong with bricks and mortar.”
He explained: “The data shows that diversified global investment has outperformed housing returns over the past decade – and we expect this trend to continue.”
One of the main reasons behind this shift, he noted, is the rise in interest rates in recent years.
“The earlier boom in house prices was driven by factors which no longer apply,” Jones added. “The sharp decline in interest rates from their peaks in the early 1980s can’t happen again.”
He also pointed out that housebuilding activity is increasing after years of limited supply, and government policies have generally become less favourable for residential property investors since the mid-2010s.
As Jones put it, “The idea that money is safest in houses simply isn’t true any more.”
The research looked further back, over more than a century, and found an interesting pattern. Between 1910 and the late 1990s, the average house price in the UK hovered around four times average annual earnings.
However, since 2000, this ratio has more than doubled. House prices have climbed to as much as eight times the average salary, making property much less affordable for typical buyers.
At the same time, global uncertainty has added volatility to financial markets and driven inflation higher. This has resulted in rising mortgage interest rates, which in turn have made borrowing more expensive.
Higher rates have also reduced the appeal of buy-to-let investments and second homes purchased with the help of mortgages, putting additional downward pressure on house prices.
Ade Babatunde, associate financial planning director at Rathbones, said: “We’re being approached by many people who own second properties or buy-to-lets, asking whether it might be time to sell and invest the money elsewhere.”
He went on to warn that this research should serve as a wake-up call for anyone who still sees property as the main pillar of their long-term financial plans, particularly when it comes to retirement or passing wealth on to family.
“The old belief that property will always deliver reliable growth is outdated,” Babatunde said. “We strongly recommend seeking professional advice to consider broader investment strategies instead.”
Overall, the findings suggest that while property may still play a part in an investment portfolio, it is no longer the guaranteed winner it once was – and relying on it alone could be risky in the years ahead.
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