Generation
Rent could end up being glad that they never bought
What’s
the best investment you could make? In the UK, most people would argue it was
housing, which is why so many of us spend every penny we can scrape together
getting either ourselves or our children on to the property ladder. But it
turns out that is not necessarily true.
A
fascinating study from the National Bureau of Economic Research in the US found
that over most of the post-Second World War period, equities had actually
outperformed housing, at least in Britain. The study took data from
1870 to 2015 for most major asset classes, and for all the major industrial
nations. For Britain, it found that equities returned 7.2pc over the whole
period, and housing 5.3pc. When you take the years from 1950 onwards, even
though we think of that as including a massive housing boom, the gulf was even
wider – equities returned 9.2pc but housing a far more modest 6.5pc.
That is
not true of lots of countries. In France, Germany and the Netherlands, for
example, housing has done better than equities – French shares have only
returned an average of 3.2pc a year over the whole period, compared to 6.5pc
for houses. Indeed, the returns on UK housing have been relatively meagre by
international standards. Only Italy and Spain do worse.
There are
lots of reasons why home ownership has fallen almost a full 10 percentage
points from its peak. Over-inflated prices, a shortage of land, planning
restrictions, punitive stamp duties and competition from buy-to-let landlords
cornering the market have all been blamed, and each of them may well have
played a role. There could, however, be another explanation we are overlooking.
People
have realised it is not necessarily a great investment. And all those
“generation rent” millennials might actually end up better off than their
baby-boomer parents – because the returns on their ISAS and pensions will beat
what they would have made on their house.
Just A Thought
Happy Investing
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