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Property vs shares: ten reasons why houses are often the better investment

Houses tend to be a better investment than shares for most people

This article looks at property vs shares from the perspective of the typical man or woman in the (overpriced) street. It does not argue buying a house right now is better than buying shares – or vice versa. But rather: why do people tend to feel they’ve done well buying their own property? Compared to their poor attempts at share investing?

Trying to weigh up the merits of property vs shares is a right of passage for anyone who gets into investing.

Most of us have limits on our capital and income. Even more so in our late 20s and 30s when – traditionally – buying your first home was a right of passage.

Of course, three decades of rampant house price growth have made that aspiration a fanciful dream for many young people.

This includes even those with above-average wages and few outgoings, unless they also get a cash windfall. (Typically a hefty contribution from their parents).

But isn’t the language telling? That we still routinely call property ownership a ‘dream’?

Despite our best efforts at Monevator, nobody talks about their dream of opening a shares ISA or contributing to a SIPP.

Everyone’s an estate agent

I used to have arguments all the time about the merits of property vs shares as an investment.

This was in my 20s and 30s. Before UK property became so expensive that it made the choice moot for so many. Before the minority of young people who could buy tended not to discuss it, much as if their family had made their money from porn.

A succession of girlfriends thought I was crazy not to buy my own home and told me so.

Some (probably rightly) concluded I had commitment issues. But others thought I was just crap with money.

The latter had a point, too.

We’d seen London house prices shoot up for years by then. Multiple friends who’d bought in the mid-to-late 1990s had earned astonishing multiples on the small deposits they’d put down.

By 2003 it was already common to have a work colleague – who earned the same as you – sitting on a chunky six-figures of housing equity. Most of it conjured out of the property boom in fewer than half-a-dozen years.

But I hadn’t bought. And I didn’t for many more years to come.

Instead, I stuck to the view that London property was over-priced by traditional metrics for all but a brief period after the financial crisis. (And in that moment no bank would give me the money to buy anyway.)

Even when I eventually bought my flat in 2018, I still thought London property was over-pricey.

More than anything though I just wanted to change the channel after literally decades of debate, sitting out the market, and seeing prices go up and up.

It’s no wonder that faith in property is almost irrationally strong. The most straightforward take has been well-rewarded.

I remember watching a BBC documentary on the Spanish real estate crash in 2012 with a living, breathing Spaniard.

After my friend had chortled her way through this tale of a property boom in Spain built on over-lending, over-construction, and over-confidence that prices would always go up, she said London was different because: “prices will always go up”.

Pass me the Rioja, I sighed.

Ten years on, she is still right.

Home ownership works well for most

Here’s what I wrote in 2012 when I first told this anecdote:

The truth is my friend will probably do fine, despite her sketchy knowledge of London’s booms and busts.

She’s going to buy her first flat soon, and if the price later falls, she’ll sit through it, and get on with life.

By contrast, I am an expert on London property prices.

Yet I managed to opt out of the entire boom and then failed to capitalise in the recent bust.

My friend’s first flat became her buy-to-let. While the rental income ticks in, she lives elsewhere in a home she bought a couple of years ago with her now-husband. For his part he brought a ton of 1990s-earned housing equity to the picture.

Their story is far from unusual. So why do houses seem to be a bombproof investment for most people?

One reason is that even after a slump, only recent purchasers are underwater. Most people buy and hold their own homes for many years or even decades.

This means that at any one time, most people you know – especially older family members – will be okay because they bought a long time ago.

The vast majority therefore only have good things to say about home ownership.

Contrast this resilience with how people talk about shares after even a brief downturn.

Property vs shares: real-life utility

Another semi-psychological reason why property usually appears to be a good investment is because a house that is worth, say, 20% less than you paid for it still does its job as a house.

In reality it was a poorly timed investment – it slumped in value.

But we tend not to think of our homes that way.

Very different to shares – especially direct stockpicking as opposed to index funds, which is arguably closer to buying a single (undiversified) home.

Almost everybody I know who has dabbled in stock picking soon swore off it. They lost money and wondered what the point was of trading numbers on a screen.

Those in funds – passive or active – have done much better. But you still rarely hear them singing the praises of the stock market.

In contrast, those who buy a home put up paintings, hold parties, maybe get a dog. They live and breathe their investment. You never see them go back to renting.

This again makes property a clear favourite for most people. Their attachment to their home means they would never entertain the case for renting versus buying.

Do shares get any more respect in 2022?

When I last looked at property vs shares in 2012, the stock market was just recovering from a massive crash.

The financial crisis had recently tanked the markets. That crash came fewer than ten years on from the dotcom crash, which had done similar damage via a remorseless multi-year bear market.

In fact the 1990s was the last time most UK share investors could remember getting rich.

No wonder people favoured property versus ‘punting’ on the stock market. No wonder the buy-to-let boom.

In 2022 though shouldn’t the situation be a bit different?

While property prices have marched on since 2012, stock markets have done even better. Shares soon shrugged off the Covid crash in 2020. And they went bananas after that.

The first six-months of this year has been hard, for sure. But the average UK passive investor still isn’t hurting too much. At least not if they’re invested in a global tracker fund, pumped up on currency-boosted gains.

And as I say, for the decade before all that portfolios soared.

You’d think as many people would now be giddy about getting into shares as property.

But I don’t get that sense at all.

What a difference a decade doesn’t make

The truth is it’s not just down to house prices versus share prices. Even when I last compared historical house price returns to shares in 2012, I found it was roughly a draw.

And I don’t think superior numbers for equities since then would change much.

It’s hard to compare these two investments fairly. Everything from taxes to financing to how much house you buy or what markets you track varies widely.

Nevertheless, I bet you know far more people who say they’ve done great owning their own home over the past 20-30 years compared to any who boast about their stock market prowess.

I suppose enthusiasm for investing did flare in lockdown, and went crazy in early 2021.

But that euphoria proved short-lived.

Indeed the whole rise and fall of making overnight riches on so-called meme stocks and cryptocoins is emblematic of why property wins out for most people, in practice. Even if it shouldn’t when you run the numbers.1

It all comes down to attitude.

Reasons why people invest better in property vs shares

Most of us treat our home purchases very differently to how we approach investing in shares. There are lessons in that for us as investors, as well as homeowners.

Here are ten reasons why property has been a better investment than shares for most people.

1. Owning a home is nearly always a long-term investment

When someone buys a house, they’re usually thinking they’ll live in it for years. They commit to being on the property ladder and paying down a mortgage for decades.

With shares, many people ask what will go up in price next week. Even those who pay lip service to the long-term can panic at the first sign of trouble.

2. We’re very choosy about what house we buy

I’ve seen many people put thousands of pounds into a company’s shares because of an article in Investor’s Chronicle, a new product they’ve seen at John Lewis, or even a tip from Twitter.

In contrast, people routinely burn through weekends and shoe leather visiting dozens of properties before finally plumping for one. That’s on top of countless hours researching via websites.

If only they took as much time on their investing knowledge.

3. We’re all experts in houses

Try this word association game:

  • Funds – OCF, tracking error, CAGR, portfolio, asset allocation
  • Shares – P/E, amortisation, dividend yield, volatility
  • Property – Two bedrooms, kitchen, garden, rent

It’s easy to see which is the most accessible.

From our earliest memories, we live in houses, we see refurbishments being made, and we find our bedroom too small.

We understand property by the time we’re teenagers in a way that only young Warren Buffett understood business.

4. You can leverage up your property investment

Now we’re getting to the hard stuff!

A bank will lend you £400,000 to buy a house at an interest rate that even in normal times is just a smidgeon above inflation.

Indeed at the time of writing – with inflation at around 10% – the cost of a mortgage is effectively deeply negative in real terms.

Just try getting the same deal from HSBC to buy a high-yield share portfolio – despite the fact that the dividends would equally cover the repayments.

‘Leveraging up’ like this makes a massive difference.

  • If I invest £50,000 into shares and the stock market doubles, I have £100,000 and have made £50,000.
  • If you invest £50,000 into a £200,000 house and the price doubles, your house is worth £400,000 and you have made £200,000, after backing out the mortgage

Yes I know houses are more work and need maintenance, interest is a cost, and whatnot. The point still stands. Taking on debt usually multiplies the return from home ownership several times over.

Most of us don’t work at hedge funds. We will never get access to cheap debt to gear up our stock market investments like we can with property, even if it was advisable. (It isn’t!)

5. There are no margin calls on mortgages

I covered this in my article on borrowing to invest via a mortgage. The executive summary is that mortgages are about the only sane way of borrowing to invest.

Why? For one thing, the bank won’t make a margin call on your mortgage. This means that if you buy a house with a 20% deposit and the price falls 20%, the bank won’t ask you to find another £50,000.

That’s in sharp contrast to say a spreadbetting account, where you’d need to stump up more money or be forced to close out your investment.

And for another thing…

6. Your house’s price is not marked-to-market

Not only are there no margin calls with property – unless you have reason to remortgage, you don’t even need to know what your house is worth.

Compare that to shares. If you buy Tesco shares this morning, by lunchtime you’ll know if you’re in profit or not. By next Tuesday you might have been scared out of your investment, or else tempted to sell for a quick gain.

I’ve lost count of the friends who’ve told me after buying a house that they don’t care what happens to house prices next. But I believe they would care if a man turned up every afternoon to tell them exactly what their house was worth that day. (Let alone every second, as you get with shares).

Blissful ignorance leaves them free to ignore volatility in house prices. This makes it easier to hold onto their investment.

7. Property is illiquid

Illiquidity is just a fancy word for something being costly and time-consuming to trade. And property being illiquid is another way homeowners are forced to be better investors.

Think about it. As if not knowing – and not needing to know – the price of your home wasn’t enough, selling a house is a complete pain in the conveyance. It’s so stressful it’s compared to getting mugged, divorced, or being diagnosed with a life-threatening disease.

Even if you do know what your house might be worth after checking on Zoopla, you’re not going sell on a whim.

Again, compare that to shares.

It’s next Tuesday, and your Tesco shares are down 3%. You panic and press the sell button. Job done, and the loss is locked in.

The liquidity of shares is one of their most attractive qualities, but it’s a double-edged sword for most.

8. You can add value as a homeowner

I sometimes tried to encourage my dad to put his talents to work at weekends to make a bit of extra spending money, or to save more for a rainy day.

He told me that after 40 hours at the office, the last thing he wanted to think about come Friday night was more work.

Yet my dad thought nothing of spending 12 hours on Saturday doing various DIY jobs around the house.

It was all unpaid labour that kept his investment sweet. But he didn’t see it that way.

9. Owning and living in your own home is very tax efficient

The biggest tax break available in the UK is probably the fact you’re not liable for capital gains tax on your own home.

Many people don’t even realise they’re getting a tax break. They just accept it as obviously true and they say it’s anyway redundant (inevitable quote: “We’ve all got to live somewhere”) but in reality it’s a massive advantage.

If you buy a home while I instead rent and try to build a war chest, after 30 or 40 years I could easily be paying tax on my investments unless I’ve been careful and maxed out my ISA and SIPP contributions from the start.

Whereas your unrealised gains are all tax-free.

Should you downsize to a smaller property for retirement, the profit you realise is completely untaxed.

And there’s more!

You get a second tax benefit by living in your own home. As the property owner you’re effectively your own landlord, yet you don’t have to pay tax on the ‘earnings’ you generate from your tenant (yourself) whereas if you were renting your house to others, you would.

People get very confused about this concept. But trust me, this is what is going on when you buy your own home.

You are ‘consuming’ housing services. (The technical term is imputed rent).

10. Property is a real asset

As a real asset, property has the ability to rise in price with inflation. Anyone over 40 might have noticed how inflation to a large extent paid off their parents’ mortgage.

Shares have the ability to respond to inflation, too, but it’s a bumpier ride.

Besides the favoured investment of the masses is cash in the bank. And that’s about as useful in an inflationary environment as a bag of kippers with a hole in the bottom.

If the Baby Boomers hadn’t owned their homes throughout the inflationary 1970s and 1980s, they wouldn’t have the lion’s share of the country’s wealth today.

Houses versus shares: Final verdict

Anyone who has spent more than five minutes on Monevator knows I’m a committed equity investor.

My first love will always be the stock market.

Also, as I’ve acknowledge a couple of times above, there are plenty of caveats you need to make in a truly fair fight between houses and shares as investments.

So don’t take this post as a rallying cry to dump your shares for a bigger house and a second garage. Diversification is financially prudent in all things, except perhaps spouses (too expensive).

Buying your own home AND investing in shares for long-term financial freedom is the best route for most of us to take.

However it’s worth thinking about how well your grandfather might have done from the stock market if he’d been willing and able to:

  • Save into it each and every month
  • Do lots of research for the best investments before buying
  • Ignore price fluctuations
  • Hold on for the long-term because selling was a big hassle
  • Leverage up 5-to-1
  • Not calculate his gains for 25 years

Oh, and get all his returns tax-free…

Appendix: A perspective on property vs shares, ten years on

I updated this article in July 2022, roughly ten years after it was first published. A reader back then even asked me in the comments below to do so.

Precisely comparing the returns from property vs shares over this time would be another article, and this one is already extremely long. 

It would be complicated, too, due to the very real extra costs of buying and owning property vs shares, and conversely the varying boost from financing through a mortgage.

But as I said when this (controversial) piece was first published and I reiterated in my introduction today, this article was never about predicting future investment returns.

For the record, here’s a graph of UK houses since I wrote the piece in 2012:

Source: Financial Times

Very nice if you happened to own a home!

However a global tracker fund would be up even more. It would have more than doubled for a UK investor, with returns accelerated by the collapse in the pound since the Referendum days.

Set against that, as I say most home buyers’s returns would have been amplified by leverage from their mortgage.

Either way it’s pretty obvious that predictions of a house price collapse made in the comments in 2012 were wide of the mark.

On the contrary, yet another generation of British property buyers has done well from home owning.

Feel free to again tell us in the comments below why that’s finally about to change. Perhaps due to rising interest rates or lower immigration post-Brexit or whatever your pet theory is.

Been there, done that, got the T-shirt.

Snakes and property ladders

It’s certainly possible that – as with bonds in 2022 – the bell will at last toll for UK property prices after an eternity of false alarms.

Nothing can go up forever. Can it?

But as we all indeed must live somewhere – and if you rent you are effectively buying a property, only you’re doing so for your landlord who is probably making a profit – I expect that over the long-term buying today still won’t prove a bad move.

Even if the question of property vs shares has a different answer.

Time will tell!

See you in 2032.

  1. That article compares paying off a mortgage to investing, which is not the same thing as property vs shares. It’s about financing choices. But it’s still maths worth doing! []
{ 67 comments… add one }
  • 1 Guy December 20, 2012, 1:05 pm

    As someone who’s been looking at buying their first house in the last few months, this is pretty thought-provoking! I’ve seen friends on the winning and losing side of housing, as well as those who I think will have a bit of a shock when it comes to selling (quoted valuation versus selling price, as well as liquidity) but what’s put me off, for now, is the amount I’d have to borrow! 100k mortgage is nothing in the grand scheme of things but it’s a lot to me and where I live it won’t go far. Still, my savings rate is good, thanks in no small part to the motivation I get from reading sites like this, so every month my potential deposit increases and the amount I’d need to borrow decreases 🙂

    Best regards and a happy Christmas to you and TA,


  • 2 MrMonkeyMoustache December 20, 2012, 1:31 pm

    To be fair, the greatest bonus of property investing, i.e. cheap leveraging, is also the largest downside. You give the example of rising prices (as an aside, surely you have only made £200k in your example), but in a falling market it is easy to make >100% losses. For example, you buy a £100k house with a deposit of £5k. If prices fall 10%, you have lost not only all of your £5k, but you owe the bank an additional £5k. Just trying to add some balance – overall I agree property is treated favourably as an investment.

    One upside you did miss is the constant free advertising of property through TV shows.

  • 3 The Investor December 20, 2012, 1:43 pm

    MrMM — That would be far more of a problem if mortgage owners faced margin calls on market prices. As they don’t, they can to a large extent ignore.

    Obviously it doesn’t make every buy at every point in the market a good one, but it’s been overwhelmingly lucrative for most people, in conjunction with other benefits of owning YOUR OWN home. (I stress as BTL is a different thing altogether!)

    Hah, good point about property tv.

    @Guy — Cheers!

  • 4 The Investor December 20, 2012, 1:47 pm

    P.S. Yes, my explanation of leveraged profits was rushed to a deadline. Fair cop, will tweak ASAP.

  • 5 Moneyman December 20, 2012, 2:30 pm

    Great article.

    To paraphrase you: if you’re going to live there a while – buy it! As you say, there are many advantages, although there always seems to be something that is falling off or needs redecorating. I might add the following thought: buy something that costs less than you can afford (if that makes sense) and pay off your mortgage as soon as possible: then you can sit back and enjoy the free ride.

    What I might take issue with is going beyond your own residence. Buy-to-let as an investment route looks like hard work and potentially an unreliable income stream to me.

  • 6 ermine December 20, 2012, 2:46 pm

    I’m gonna challenge 5 and 6. Most of the time you are correct. Sadly, however, particularly for people who buy too much house or time their purchase wrong, the time that they get a margin call and are marked to market are some of the worst times of their lives when they are down on their luck in other ways. Namely when they lose their job and can’t pay the mortgage, or their relationship breaks up and they have spent so much on a house that it requires both parties to contribute to the house.

    Neither of those happened to me but I still lost more money on house buying that even as a overtrading head-case in the dot-com bust. It happens. The reason people don’t hear about it so much is with few exceptions, people keep schtum about it. What’s even worse is that you get clobbered early on in your working life, when money is tight. Later on you may have built up some equity and the prudent actually pay down some of the mortgage debt, as a result you are usually in a much better position to eat some losses as a long time in the market added to your ‘savings’ paying the mortgage will have built you some equity.

  • 7 Martin December 20, 2012, 3:58 pm

    Good article, but…

    “If you invest £50,000 into a £200,000 house and the price doubles, your house is worth £400,000 and you have made £350,000.”


  • 8 Luke December 20, 2012, 4:04 pm

    Correct me if I’m wrong, but the second tax benefit in 9 doesn’t look entirely correct.

    Isn’t mortgage interest tax deductible if you’re a landlord? That might save you quite a bit if you were a highly leveraged landlord with a new propety.

    So definitely better to be an owner occupier for tax purposes, but it doesn’t seem to be as simple as full tax on earnings/no tax on occupation.

  • 9 bmf December 20, 2012, 4:06 pm

    I really disagree with this article. Because of tax breaks and access to leverage devoid of fundamentals, plus an irrational population stoked by TV, housing in the UK is way too expensive. As a result of this prices have risen to absurd levels.

    If you think this is going to carry on IMHO you are wrong. Where can it go now? Leverage is reduced because it was insane. Rates are at the zero bound and can only go up. Liar loan fraud has been tightened up. It’s a bubble borne not of true worth but of asset appreciation due to ever slacker rules on lending. Would you recommend a stock that was based not on P/E but instead on speculation?

    The government is now lending *direct* into the market to try and preserve low rates as banks won’t take the risk.

    I like this blog but hell does this shake my faith.

  • 10 Hmmmmm December 20, 2012, 4:14 pm

    Bit disappointed here – lots of cherry picking and not clear cut.

    You speak nothing of buy-to-let, which would be a much more meaningful comparison vs shares.

    1 – A lot of people will buy/sell in a short timeframe if they think they can make a quick buck. E.g. 2000-2007. “An investment is a trade gone wrong.” Fear and greed drive it, just like the stock market.

    3 – In the same way that 80% of people think they are above average drivers?

    4/5 – As ermine says above, these are serious drawbacks, not benefits and people brag when they make lots of money from property but keep very quiet when it all goes wrong. Worst is that most people don’t even think these points are drawbacks (“I can make the monthly payment”) or even believe they are benefits (!).

    6/7 – Mark-to-market is critical to open pricing and liquidity, both of which are major advancements of modern finance and help to discourage speculation, provide transparency and avoid moral hazards – not to mention estate agents grabbing a large chunk of your cash. The modern housing market is a financial anacronism lacking in meaningful progress since WW2. Compare with stock market evolution in the same timeframe.

    8 – This is mixed. Adding rooms, space etc. yes, definitely. Pink flowery wallpaper, no. And everyones’ tastes differ.

    9 – This form tax relief encourages speculation and price ramping. It should be subject to capital gains like anything else. The stamp duty system is utterly broken and distorts the market – is that advantageous or another “benefit” because it stifles?

    10 – So is a company, gold, a car or a bar of soap.

  • 11 The Investor December 20, 2012, 4:36 pm

    @Guys — I’ve fixed the leverage maths. 🙂 As said above, mea culpa! I was racing to hit the subscription email deadline of 11am and didn’t have time to engage my brain!

  • 12 MrMonkeyMoustache December 20, 2012, 5:03 pm

    Unfortunately you can’t have the argument both ways. You only make money on a house when you mark it to market AND reduce your exposure to the market, i.e. sell it and downsize or rent. Your hypothethical house has only made you (up to) £200k in these circumstances.
    If you stay put you still have the original house and remaining debt.
    If you buy another comparable house, you still have 1 house and the same amount of debt to pay off (ignoring selling/moving costs).
    If you move up the “ladder”, say to a house that would have cost £250k originally, but has increased to £500k in the same timescale, you now have a different house but an extra £50k of debt in comparison to having bought it straight away.
    The only time you win on YOUR OWN home in a period when house prices are inflating is when you move somewhere cheaper.
    BTL is indeed a different scenario.

  • 13 MrMonkeyMoustache December 20, 2012, 5:07 pm

    P.S. Thanks for a great blog. I’m just starting to diversify away from cash (and my own home) and your articles have helped me gain some understanding of the minefield that is investing. I’m guilty of being quick to comment when I see flaws and silent when I’m benefitting greatly from the articles here. So once again – a big thumbs up for MONEVATOR.

  • 14 The Investor December 20, 2012, 6:18 pm

    @All — Thanks for the comments good and critical (to an extent 🙂 ), and for the further thoughts. I’m going to reply to a few here together, as there’s some overlap.

    Firstly, this isn’t an article comparing BTL to shares. I never said it was. It is specifically an article considering why people tend to do well enough *buying their own home* versus their attempts at investing. Comparing BTL and share investing is interesting, but it’s not this article.

    Some people may have seen home ownership and share investing success spread about equally among your friends and family. If so, you move in pretty high falutin’ circles compared to me.

    I trivially know at least 200 people (/households) who have done well to very well from buying their own home, in that they now have an asset worth hundreds of thousand of pounds, or they’re seemingly well on their way to getting there.

    I know barely half a dozen people who’ve actively invested at a similar scale in shares and, adjusting for my age, I’m probably the most active and maybe even the most successful. There’s absolutely no comparison between the two, in my view.

    Why is that? That is what I am discussing here. I am not discussing whether it’s fair or right or sensible. I am trying to think about why it is this way, so I understand the world that little bit better.

    Mention house prices and people start saying things like: “If you think this is going to carry on IMHO you are wrong. Where can it go now? […] I like this blog but hell does this shake my faith.”

    Please, I’m perfectly capable of being wrong but I’m not stupid.

    I began opinining that house prices in London were in a bubble in 2004 — the price to earnings ratio was already around or over the all-time high — and have actively sat out the market (as I said above) for that reason. (Unfortunately this blog only goes back five or six years, but anyway here’s a warning from me about London house prices from 2007, pre-banking crash etc. And here’s an article from the same year about the BTL boom).

    Along the way, people who bought have generally done okay.

    *That* is what this article is about. It’s not an article attempting to predict what house prices will do next.

    I laugh my socks off when I read the certainty with which people claim that prices are doomed to fall and so on. Not because I think there’s nothing in it — on the contrary, I’m inclined to agree — but because of the messianic “I see it and THEY DON’T” certainty.

    Believe me, people were writing exactly the same stuff about London in 2002 and 2003. Smart people who understood lending was rampant, price to earnings were elevated and so on. It cost them a fortune.

    But anyway, as I have said repeatedly, this article is about what it’s about, not what it’s not about. 🙂

    Also, if you want a blog where the authors sit on high claiming they know exactly what is going to happen about everything, then you’ve come to the wrong place.

    Think of a war film, where eventually the young recruit stumbles across a grizzly old one-eye veteran who has chucked his fancy rifle away in favour of a sawn-off shotgun because he knows what works when the fighting gets close and nasty.

    That’s me and the London property market.

    I am well aware of property bubbles, and I am about the only person I know who actually did anything close to predict the scale of the problem in 2006 (though I didn’t foresee the mechanism of collapse at all).

    And yet you won’t find me being so certain. I’d wager grinding deflation in house prices and maybe half a generation who never get on the ladder are the likeliest outcome. But I think there’s a full spectrum of possible scenarios.

    Losing your job is NOT the same as getting a margin call. A margin call is if your house falls 20% and you then have to find another £50,000 as a deposit or similar. This does NOT happen. Being unable to pay your mortgage is a risk, but it’s a very different risk from being marked to market and facing margin calls. Try spreadbetting or investing on margin for a week to see how it feels. 😉

    Similarly, there are of course risks to buying a house and people do get into difficulties — particularly here in the UK where lenders have full recourse to their loans after default etc.

    But that doesn’t change my point. In fact, it makes it even stronger — despite these risks, most people do very well buying a house. I think it’s productive to think about why.

    Regarding how BTL landlords get a tax break by setting rental income against interest payments, this is completely correct. However it doesn’t contradict my point. The mortgage cost here is a quirk that complicates the maths. Theoretically, a BTL landlord could buy a house entirely with cash, and you too could buy a home with cash. No mortgages for either. He pays tax on his rental income, you pay no tax on your imputed rent. The mortgage deductibility is an (important) quirk that makes the maths more complicated — and a landlord would be silly to structure his finances without using it — but it doesn’t change the point about the second tax break from home ownership.

    (Incidentally, I agree it’s a tax perk for landlords and I happen to think it should be scrapped to help first-time buyers compete with them. But — drum roll — that’s not what this article is about…)

    Regarding a house not being marked to market and that being incompatible with my claim that you make a profit when house prices go up…

    There’s no incompatibility here. Just because somebody doesn’t know they have made a profit, it doesn’t mean they haven’t made one. The key about price opacity is it stops people worrying about their house prices (though The Daily Mail and co try their hardest!) It’s not that prices don’t rise and fall.

    The idea that you haven’t made a profit from your own home until you sell and revert to cash is IMHO one of the biggest fallacies about property. It’s worthy of a whole post.

    In short: My friend who bought a London flat 10 years ago paid £200,000 and pays (for example) £1,000 a month as a mortgage.

    For the same house I’d now have to pay £400,000 and pay (say) £2,000 a month.

    He is enjoying the benefit of £400,000 worth of housing goods, whether or not he chooses to sell up or not. And I have to find an extra £200,000 to achieve the same lifestyle (or the equivalent in higher rent payments).

    You can make this more complicated by considering the opportunity cost of the money he put into the house originally, ongoing maintenance costs and so on, but the main point is pretty clear. It’s better to have a £400,000 asset (less costs) than to not have one, and the fact you’re living in it doesn’t change that. 🙂

    Finally, again I apologise for the leverage maths slip-up in the original copy.

    I have to finish these posts by around 11am for the Google Email system to send the post out that day, and I added the maths too quickly. Being verbose catches up with you in the end, although it’s never possible to add enough caveats to please everyone… 😉

    (The annoying thing is that those who only see the emails are only going to see the error. Grr!)

  • 15 Simon December 20, 2012, 6:23 pm

    @bmf If you read the article a little more carefully, or perhaps even just read it, you’ll see the author is not saying “this is a great time to buy property! go and do it!”.

    The article explores why people appear to have done well out of property in the past, and as a thought experiment, asks you to imagine how well the same people might have done out of shares had they approached them in the same manner.

    There you go, I saved you the trouble of reading it after all!

  • 16 bmf December 20, 2012, 6:39 pm

    Simon. Have read it, but thanks for the attempt at dismissing me on a supposition. First sentence:

    “About once a month I have an argument with someone – usually my girlfriend – about whether houses are a better investment than shares.”

    “is” not “was” a better investment. And others have pointed out several other points when it comes to monetizing this “wealth”.

    Also any article on property that uses the phrase “ladder” without some heavy reference to what a flawed concept this is immediately makes me wary.

  • 17 The Investor December 20, 2012, 8:16 pm

    @bmf — There is a property ladder, as at least 15 million people in the UK can tell you. Whether it’s secure and sensible to get onto it at any particular point in time is another matter, and not the point of this article.

    (And yes I know the arguments against the terminology / complications, from the interaction with inflation to a history of flat house prices prior to World War 2 to Ponzi schemes. As I have already alluded, I was thrashing this sort of thing out with others ten years ago when property bears first emerged on the Internet. It’s boring to hear me say that yet again? I agree. That’s one reason why these articles aren’t stuffed (even more than they are!) with caveats and self-justifications. 🙂 )

    Simon is spot on with his summary above. If you read my article and you still think the comments you’ve made genuinely sum it up, then I guess it’s just not for you and I can’t really add anything else. Property is an emotive subject.

  • 18 bmf December 20, 2012, 8:22 pm

    Title: “10 reasons why houses are a better investment than shares”.

    Your first sentence also infers the present tense. As does the context of arguing with your other half. What is there to argue about with past performance? Compare the average price of houses with the FTSE100 or 250. Job done. Only the future is subjective.

    I hope you can see why I and other posters disagreed with your points where the context is “why houses are a better investment than shares” as per your title. If that was not the case, try to see how others have read it and learn that putting a title like this draws attention on things people feel strongly about.

    Great blog, I continue to subscribe and hope that the Accumulator uses his xmas break to crank out more articles.

  • 19 The Investor December 20, 2012, 8:40 pm

    @bmf — The title does what it says on the tin, IMHO. The article was already 1,900-odd words. There is a limit, even on this wordy blog.

    The context of the discussion with my other half is she sees a TV programme about a property crash in Spain and yet she still thinks London is immune to a crash, for no real reason. It’s the opposite to what you’re suggesting!

    I then go on to explore why she’ll probably do okay — like 95% of most other people who buy a home — despite this naivety. That is what is interesting to me here.

    I would hope it would be clear to a regular reader that when I — someone who likes share investing so much he has set up a blog about it — argue once a month with someone about the merits of property versus shares, I am not arguing that they should load up on all the property they can buy and hang their other investments.

    Like nearly everyone in the ‘real world’ (but not on the Internet, where you write about property at your peril) the people I argue with tend to think property is intrinsically safe, and that prices always go up, and that shares are intrinsically risky, and you can easily lose money. So of course there’s an argument.

    Anyway, let’s agree to disagree before everyone else gets utterly bored. 🙂

  • 20 Geo December 20, 2012, 10:59 pm

    Wow, @investor I think this issue is very close, I don’t think your feedback has been as detailed and quick before, but in the uk I think house prices are closer to all of us.

    I think the key as has been said is that if it’s your own home it can never ever be thought as an investment, you always have to live somewhere and I’ve never met anyone who has own sized to realise a return in their house, only ever up. I think that is why the mixup with BLT, but then there are numerose tax issues although not unsurmounable.

    So never think of your home as an investment. I personally think its best to separate your pots and always have mix of assets.

    Merry Xmas.

  • 21 Steve December 21, 2012, 1:11 am

    I have invested in both shares and property from a very young age,first shares then my profit was spent in property,I valued property like I valued shares, PE ratios and Yield,
    I only bought property that I could add value to (and reduce risk).
    I have played these markets off each other and only invest in either if the price and ratios are in some kind of value or fair value compared with the other.
    I was lucky as I worked from a very young age (weekends) and finishing school at 15 meant I got on the property ladder early.
    If I had to give advise to anyone who was not a straight A or B grade student it would be.You have 4 years of free living, finish school early,get a job and invest your 20k each year in shares first, then property and you will be streets ahead of your straight A friends.
    I like the pay as you go approach that shares offer (with no debt needed).If you start investing at 18 you are 2 years late.

  • 22 Luke December 21, 2012, 12:29 pm


    Can you buy shares before you’re 18? I naively assumed that you couldn’t because you need to be 18 to open your own ISA (as opposed to a child ISA, which will have been opened by parents).

  • 23 Luke December 21, 2012, 12:30 pm

    And yes, I know you don’t need to invest in an ISA, but the Monevator blog has convinced me that it’s the only way to go 😉

  • 24 Passive Investor December 21, 2012, 3:31 pm

    Another great posting, thank you.

    I don’t think you mention one huge aspect of the UK property market which has been the impact of planning laws. Planning restrictions have significantly restricted the supply of property over decades when there has been a large increase in demand (demographics, immigration, divorce, etc etc).

    Even if you support the case for some planning restrictions (as for what its worth I would) it is clear that there has been insufficient housebuilding in the SE of the UK and that the ‘have’s’ (generally older, wealthier property owners) have used their political muscle to protect their interests against those of the ‘have nots’ (who are generally younger and less wealthy).

    Imagine a stock market where owners were able to restrict the supply of stocks to non-owners!

  • 25 Steve December 21, 2012, 3:33 pm

    Not in your own name, but you can have them in your parents name and have your name attached.
    ISA’s are the best way but you can only get the junior ISA and they don’t tend to be as cheap to run.
    If nothing else you should build money in your early years at home as this can make a big difference in adult life.

  • 26 AnAdmirer December 21, 2012, 4:05 pm

    I think the Investor has done a bold thing here and certainly has his head screwed on. Certainly, this seems to have turned into a bit of a hot potato!

    The points about the psychology of property purchases are most interesting – ultimately people think that prices will only go up because for most people, most of their lives, they have – and big. And a large and lucrative industry (and even the UK economy itself) is predicated on this. Sentiment is a massive influence and such (over) confidence does not exist with the stock market.

    Not only can the property market stay irrational longer than you can stay solvent, it could even stay irrational longer than you can live. E.g. look back at the past 30 years.

    People only learn when they lose (a lot of) money. Nothing else will really teach them. A really large serious crash is in no-one’s interest (borrowers, lenders or the government) so it never happened in 2007-2008 when it should have. The “bubble” in a sense continues only because the country cannot afford, economically or politically, to burst it dramatically. The general public do not (largely) realise this.

    In short: apologise to your girlfriend, buy her some flowers and tell her she’s right about houses (even if she doesn’t really know why, although I advise you omit that bit) 🙂

  • 27 Salis Grano December 21, 2012, 11:43 pm

    Generally agree with the article, but the chief reason for the success of property as an “investment” is not economic but political. Governments can simply not afford to allow it to be otherwise over the long term.

  • 28 Steve December 22, 2012, 10:46 am

    Government interfering has skewed property prices,interest rates have been kept very low to take money off pensioners and savers to stop big mortgage owners defaulting.
    These repossessed houses should of lowered house prices and increased yield,also lower house prices would lower the asset value held by the banks used for the loans, and make most of the high street banks insolvent.
    Eventually inflation will run wild, money will be worth far less than it is today and when interest rates finally go up house prices will struggle.
    There is no telling what government meddling will do and this is the real danger.
    Different locations should be priced differently just like different companies are,and different sectors are in the stock market,all areas have different employment prospects, jobless rates and growth rates so should be priced accordingly.

  • 29 JC December 24, 2012, 2:11 am

    I have to agree with the opinion that house prices in London will “always” go up. As far as I can see, unless a huge unforeseeable disaster (natural or otherwise) occurs, the cost of property in London will on average increase at rates above inflation (the average cycle is said to be about 7-10 years for prices to double).

    To me the main reason that a house is a great investment is that everyone is already paying a mortgage: if you’re renting then it’s your landlord’s. if you’re an owner/occupier then it’s yours. If the cash is already coming out of your pocket then why not have an asset to show for it.

    Rent increases with supply/demand, mortgage decreases over time as you pay it off and the value is eroded by inflation.

    Also, if you do lose your job etc., you can always move out and let the property whilst renting somewhere cheaper, not ideal but still helps protect yourself from having to realise any losses.

    Also worth mentioning is that as property prices increase you can release equity from the property to invest in other things. This is how many of the BTL millionaires made their cash. It’s true that many of these went broke in the recession but I would say that they were the aggressive ones leveraged up to the eyeballs.

  • 30 The Investor December 24, 2012, 11:22 am

    @JC — You make some excellent observations. I don’t think they explain why London prices will ‘always’ go up though.

    Most — probably all? — of the factors you cite are true of all property markets (landlords, asset building versus rent consumption etc). Yet we know prices in property markets across the world have gone up and down.

    If prices in London do always go/stay up, it will have to be because of some special circumstances. (e.g. World city, foreign money, growing power of finance and London staying pre-eminent etc)

  • 31 JC December 25, 2012, 6:05 pm

    Actually it’s not so much that I think the prices will always increase in real terms it’s more that I don’t think that it will decrease, therefore making it a good investment for the reasons in my above post.

    Demand to live in London is only going to increase as the population of the UK increases at a faster rate than it is possible to build property in London. The transport infrastructure is already there and there’s very little space to build more housing. Therefore demand will outstrip supply.

    You might say that for prices to always go up/stay up there must be special circumstances, but my take on the situation is that it would take special circumstances for the prices to go down.

    That said, with the way people are piling in to property whilst the economy is in turmoil, it does make me worry that property could be the new gold; with an inflated value placed on it by investors using it as a “safe” place for their cash. However, unlike gold, the property market in the UK is fiercely guarded by the government who have made it clear that the UK cannot afford to let prices crash.

  • 32 The Investor December 25, 2012, 8:54 pm

    Definitely agree with you and Salis that the government’s desire to keep house prices up in a democracy is a big factor. Perhaps even a candidate for an 11th reason! I think this was what I missed in the mid-noughties that undid me!

  • 33 Savvy Scot January 1, 2013, 8:53 pm

    Great article… Happy New Year

  • 34 DollFish January 10, 2013, 8:42 pm

    I came across this blog by accident while looking for where to buy for £250,000 in London (yes I did actually put that into Google) so I’m obviously not anywhere near as clued up as you and your regulars but I am reading through past posts and finding them really interesting.


  • 35 The Investor January 10, 2013, 9:23 pm

    @DollFish — Glad to have you stopping buy. I actually wrote a post about that a couple of years ago, but as you’ll know the market has moved on since then. Still, you might find it interesting: http://monevator.com/what-can-a-first-time-buyer-in-the-south-east-buy-for-less-than-250000/

  • 36 DollFish January 10, 2013, 9:29 pm

    Sorry that’s the one I came across first but obviously posted on the wrong one haha sorry about that.
    Nice play on words “buy” the way. I’m a mag hack so appreciate that.

    Still working my way through your posts. I’ve never invested (at 28! Shocking!) but I’m interested in starting.

    Anyway like I said, great blog.

  • 37 The Investor January 10, 2013, 11:31 pm

    Thanks DollFish, much appreciated. 🙂

  • 38 Chris Downing March 7, 2013, 11:34 am

    I agree with the guy who says you have been cherry picking. I can see you want to make the aguement for buying property – but in an open debate you’d get eaten alive.

    So forget interest rates are only going to go up – and the average long term rate is 7% – what will that do to prices and reposessions? The economy is in the tank and we can look fwd to more public sector redundancies, more Goverrnment spending cuts way more than we have had so far, and banks and building societies bringing in new much tighter lending rule – so even less new buyers. There really isn’t any good news about house prices going up.

    Lastly just look at the long term trend for house prices verses stocks and shares. Even if you argued they tracked each other – the market doesn’t have community tax, maintenence and repairs, and huge entry and exit costs and taxes. (You’ll notice on TV shows they never talk about the solicitor costs, the estate agency fees, the surveyors costs, stamp duty and the fact that the rennovations have ll been done by the owner and apparently their time costs absolutely nothing!)

    I’d love to see you revisit this blog in five years and ten years and see who was right. The point is property isn’t the low risk investment that most people (especially Londoners) believe. Look at all the economic numbers. I see trouble ahead.

  • 39 The Investor March 7, 2013, 10:42 pm

    @Chris Downing — Thanks for your thoughts. I am going to sound like a stuck record, but this article was not about whether property investment is a good idea in London *right now*. It’s an article asking why people tend to do better from investing in property than shares, regardless of the time. It’s about what we can learn from that, if anything, to bring to our general investing.

    It’s rather ironic to me that while you’re suggesting I’m over optimistic here, on another article — one from six years ago, as it happens — I’ve just had a comment pointing out time has told I was too pessimistic thinking that London property prices would fall.

    The article/comments are here:

    I don’t want to encourage this thread to be about the state of the property market, as that’s not the point as I say.

    But what I did learn from my experiences trying to figure out property prices in 2007 and before — when I and others were saying lots of things like you’re saying here, only to find a London property market almost inconceivably somehow higher now than it was then — is a healthy dose of humility.

    Believe me, I am famous among my friends for being gloomy on London property prices since about 2004 (having urged them to buy before).

    Oh, that and being wrong about those prices, as it turned out.

  • 40 Chris Downing March 8, 2013, 9:18 am

    I think it intersting that in parallel with you the head of the property activity in one of the big four accountacies in London, was also right out if the market and renting as you were in 2007. Now if a professional ‘expert’ can’t get it right what’s going on. We can see in retrospect that reading the market is almost impossible unless you have insider information. Once the sub mortgage market blew up we could all see to what extent the market had been fuelled by fraudulent statements on income matched against what people wanted to borrow – only insiders would know to what extent that had driven house prices – and even now nobody is giving us the numbers. Secondly, nobody could have forecast the extent of Quanatve Easing and how this might avoid what we had in 1989-92 – a house price crash. Third, nobody would have expected an all time low interest rate of 1/2% running for years. And nobodywould have predicted that unemloyment would seem to have littel effect on house prices.

    But all this tinckering with the house price market could well be stretching confidence like elastic, and the further t gets stretched, the mo violent the correction back to the norms. Of do those who sell the dea of property as an investment (something so easy to do and win itsva no brainer income add on) wantto believe that wheere we are now is the new norm and frget the past – the same past they use as evidence that property is as good an investment, or betteer, than stocks and shares. But if you want to believe the past valuations and trends as evidence for the case, you also have to accept the norms will return and that means 7% bank rate and valuations at 3.7x average earnings for the price of an average house. Those two alone mean a doubling of mortgage payments and at the same time a drop of something like 30% in house prices.

    If the house market was run and managed like those investments monitored by the FSA, much of what is presented would be illegal investment advice.

    As you say – you missed the last increase because you were not in property in 2007 – but all the indicators lookeed like was the smart move. All the indicators after 2008 said the smart move was to wait for property prices to inevitabley fall by at least 30%. They haven’t. It’s an impossible hard market to read because of Government interventions that skew confidence, interest rates, money value, legislation. All our intuitive senses tell us that in an economy that’s this tough, with companies laying off staff, with government cuts and redundancies, with banks unwilling to lend and big deposits required – this should all influence prices to go down. The frustration for the analyst is that the market seems so contrarian and won’t react to events. But they do say there is a two year delay before what happens today appears in prices.

  • 41 The Investor March 8, 2013, 10:19 am

    @Chris — I think from what I have learned, if I could have my time again — well I’d do quite a lot of things, I wouldn’t be so shy at the school disco for starters! 😉 — but when it comes to property I’d try to split the difference. So I wouldn’t go all-in with the biggest credit-card deposit funded property I could possibly buy like some I know did, but I’d try and get a toe in the water somewhere. Maybe a 1-2 bedroom flat in a dull location rather than trying to get a better/bigger property in a better location. If a crash, I could upsize on the cheap, and if no crash, I’d not be locked out.

    My late father urged me to do this, and I choose not to listen because I could see that property looked stretched by all the sort of measures I’d look at if houses were shares (price to rent, price to earnings etc).

    What I’ve realised is houses are not exactly like shares, because we live in a democracy. That doesn’t mean prices can’t go up and down, we know they can and they have gone down over much of the country. But I underestimated the extent to which politicians and Central banks would act to ameliorate the pain for the average householder/voter. Hence I never foresaw interest rates going below 3% or so. Seems absurdly high now, but they hadn’t for 4-5 decades in the UK.

    I don’t think such actions can stop price falls — as we know, they have fallen in much of the UK, as well as US, Spain, etc — but I think they can soften the blow.

    I’d also put more weight into the factors homeowners talk about that I dismissed 5-10 years ago, such as a sense of ownership and control, and so forth. Partly because I think it holds the price up better than would otherwise be the case if people treated property like shares on a stockbroking screen, but also because there’s a utility/pleasure that you derive out of that, which I didn’t really account for.

    While I wouldn’t go as far as ‘inside information’ or similar — I think the insiders have been just as confounded if not more so by events over the past few years — I agree with most of what you’ve written about London property. I still on balance expect prices to stay flat or maybe fall in real terms over 5-10 years. It’s very easy to make a case for other scenarios, good and bad. The big outlier is foreign money, but even if that dries up a recovery in financial services might offset it.

    Mainly I’m saying is I personally would be cautious about thinking anything is obvious, and I’d put more weight to the differences between property and other markets. The bottom line to all my points above is that the average person benefits from property because the way they invest in it (for the very long-term, looking at lots of places, with cheap money etc) offsets some of their disadvantages (such as knowing little about underlying fundamentals).

    In contrast, I was too “clever” for my own good. 🙂

  • 42 Chris Downing March 8, 2013, 12:36 pm

    Yep agree with all that. The bottom line is you can live in a house you are buying, whatever its value.

    But the idea you can live in a house for thirty years and at the end sell it and recoup all your living costs during that period just isn’t a sustainable model – but you’ll have a merry old time trying to get your fellow dinner guests to understand that if they erroroneously believe house prices will continue to grow exponetially for centuaries. When you try to point out there comes a time with their model that the average house is two million and nobody can afford to buy it or rent it that they come out with the old nostrum, “Look, everyone knows you can’t go wrong investing in property, whatever you say!” And then when their property in Ireland / Spain / Portugal has halved in price recently, they say, its people like me that have been talking it down! I’ve even been told that no property has ever declined in value, that the dip between 1981 and 1985 never happened, that the drop of 20% between 1989 and 1991 ( even though I oersonally remeber flat in docklands dropping from £250k to £150k) didn’t happen. Property is the weirdest subject to try to debate!

    BTW – When I said insider knowledge I was using the term in the sense of truly understanding the extent and risk associated with fraudulent information on mortgage applications – not the legal term. Only the Banks and Building Societies know the extent to which a rise in interest rates will cause mortgage defaults due to wrong information given by borrowers. And the same it terms of how many clients will fall into negative asset values and knock on problems remortgaging. In the 1989-1991 period the buy to let market collapsed due to renter bailing on their landlords and opting to buy at the new valuations – mortgages became cheaper than renting and if you had a secure job you looked like a good risk to the lender – it accellarated the decline in prices and the demises on thousands of landlords.

  • 43 Jonathan March 15, 2013, 1:46 pm

    You didn’t mention the tremendous tax break of non having to pay income tax on the putative rent received by an owner occupier from himself.

    If he rented his own house out, and rented an identical one next door for the same price, he’d pay income tax on the rental received. this doesn’t happen when he lives in his own house (at least, not in the UK — in Denmark, for example, the putative rent is assessed and taxed).

  • 44 Chris Downing March 15, 2013, 5:53 pm

    I think Te reverse is what people forget – that you are supposed to be paying tax every year on the gains you make on another property. Now don’t tell me everyone is paying tax where they should be. With so much fraud existing in this market a few years ago, I just don’t believe its gone away. But you won’t find any Government wanting to do anything that might givebthe property market the jitters – especially as I’d guess a whole lot of MPs are landlords as well as MPs.

    If you consider a housee is something you can live in and owning it creates stability, then owning makes sense. If you just want to own to invest, I think the whole thing is pretty dumb because you have so little control over the outcome. If I invested in a shop I can run t as a business amd there are all sorts of variable that I can control to make it successful – I am at the wheel of my own business. But the housing market is a ride on a container ship – turns slowly, difficult to get off fast, and no control over the sea, the weather , AND you aren’t the captain either. It’s a dice roll.

    If I get enough together to consider buying a house to rent out – I’d hope i would opt to start a new business anyday. Perhaps that cultural approach is why Germany is economically so successful?

  • 45 Best Gapp April 22, 2013, 5:39 pm

    Great article. It’s true that property has the long term factor on its side. I think it’s key to see your main property as one to live in, not necessarily as an investment, unless you do a lot of research! I think also the problems with the recession have made a lot of people lose faith in stocks and shares and turn to good old bricks and mortar as a safe bet.

  • 46 Emanon August 2, 2013, 6:14 pm

    Bravo…. If we treated stocks/shares as loosely as we do with our homes we wouldn’t have to worry about our government potentially dipping into the pension pot at some point down the line….

  • 47 Jules June 10, 2014, 2:53 pm

    I think stocks are better than property. BUT that is really if you know what your doing, most don’t so most should just stick to property because it is the laziest investment there is.

    Property? Just buy in a city centre, ideally near to train stations / trams for commuters and charge a reasonable amount. You can ROI >5% per year every year and that is with maths that assumes a lower than average rental price, meaning you don’t have to charge that little, but you know if there is a down period in the market, you can still lower your pricing and still be OK.

    Picking a stock is very hard for average British Joe. If you asked a buy to let investor what stocks they would buy, my money is on them having no idea. And these people are even more savvy than the general public. Property is the easy route and for most of the public, the better choice, because they simply know nothing about stocks. To them, they’d just invest in Apple, McDonalds and any big brands they’ve heard of. McDonalds is a 2-3% ROI investment so actually isn’t too terrible, but picking stocks based on amateur ‘instincts’ or a company name you’ve heard of and sells ‘cool clothes’ does not work. Some of the best performing stocks sell things you haven’t even heard of.

    Good stocks will bag you 8% return a year. Property can do 5% and is much easier and student lets can get 15-20% with added risk / effort. Try and get both stocks & property in your portfolio eventually, and if you don’t know what stocks to buy, just buy another house. Right now doesn’t feel like a good time to buy a property though, prices are high, I’m waiting until they crash again, like they always do.

  • 48 bob October 28, 2017, 9:44 am

    @ Chris Downing: “I’d love to see you revisit this blog in five years and ten years and see who was right.”

    With around 4 months to go until the 5 year anniversary of your post…it doesn’t look like it’s going to be you…..and that’s despite stellar stock market returns over the same period.
    I’ll check back in in 2023. Or I’ll get my robot butler to do it.

  • 49 Ali January 15, 2022, 12:56 am

    @Chris Downing @bob

    I’m visiting from the future of 2022. The Investor was right.

  • 50 Andrew July 7, 2022, 4:05 pm

    The idea that property isn’t marked to market is a strange one tbh. Your *debt* certainly is.

    If rates are back at the 5-7% level, even in 5 years time, there will be millions who can’t afford to put food on the table when they come to refinance.

    I’m earning a strong 6 figure salary and I’d easily be among them.

    Unfortunately, this is just part of a wider trend in British society: less security, less certainty, greater risk.

  • 51 Nigel Owen July 7, 2022, 4:49 pm

    rite of passage

  • 52 BeardyBillionaireBloke July 7, 2022, 5:49 pm

    “right of passage” rite

  • 53 Chris July 7, 2022, 5:53 pm

    All the above is very interesting and well researched. However, the simple matter is that as long as there remains a housing shortage, the buying of property will always be a good and safe investment. Nuff said ☺️.

  • 54 The Investor July 7, 2022, 6:13 pm

    @BBB @Nigel — Quite rite. I mean right! 😉 Unfortunately I don’t get a sub like @TA 🙁

    Even one of these exes pulled me up on it!

    Will repair the on-site damage when back home.

    @Andrew — It’s not at all strange it’s entirely accurate. There’s a post on the site about it somewhere; I think my “not afraid of my interest only mortgage” one. The mortgage is financing. Of course it still matters. 🙂

  • 55 xxd09 July 7, 2022, 6:39 pm

    Great article as always
    As a callow youth of the “60s” I could not raise enthusiasm for property but was forced to buy the cottage I was in as an assistant vet when I became a partner
    I had become much more interested in pensions which was a very very unfashionable outlook at the time-guaranteed to raise groans round the dinner party table as opposed to discussing houses!
    Property was everything at the time probably because everyone knew about it or thought they did
    I regarded my house as a money pit and am in fact still in the same cottage!
    3 kids and university/pensions /isa,s used up all our spare cash
    Looking back I think it was the right decision albeit forced on me ie buy the smallest house you can afford to live in and save /invest your cash
    At 75 now and long retired a cottage is just right for two people plus we have enough saved to really do what we want (within reason)
    Would do the same again

  • 56 The Investor July 7, 2022, 7:00 pm

    I don’t think I was super clear about marked to market in the comment above. Is all in the article I link to in my main piece but anyway the key is you don’t have to stump up extra collateral or else repay all your debt if house prices fall below some crucial level in the period of your loan. That’s exactly what happens with eg margin loans.

  • 57 Jonathan B July 7, 2022, 11:24 pm

    I have never thought of my home as an “investment”, but once I could I bought (with a mortgage) so I wasn’t at the mercy of landlords, had more choice, and could make the place my own.

    However you probably see it differently with a London perspective. Your re-post prompted me to look on Rightmove to see the most recent price for my first property, a London flat bought 40 years ago. I have moved (due to jobs) four times since then, and my most recent mortgage was ten times my first one – but if I had stayed in that first flat its value would be not much less than my current listed Georgian house in Yorkshire. Nevertheless I have had somewhere to live that I liked all the way through.

    Whereas if I had hypothetically put my equity in a FTSE index tracker (no leverage available, and rent having to be paid) its paper value would be about ten times less.

    Makes one think.

  • 58 Learner July 8, 2022, 1:04 am

    Killer 2022 update TI.

    Not to mention a constant carry cost on the sharemarket investment route equal to market rent, vs a lower and declining interest cost on the home ownership side. Own + invest indeed!

    (By 2032 I’ll have been renting for 30 years. I can confidently say this is an extremely bad idea. See ya then!)

  • 59 Erico1875 July 8, 2022, 8:45 am

    I have a mortgage at 1.7%. With inflation topping 10% and house prices in my area increasing at a similar 10% rate, am I right in thinking it would be crazy to pay it off as the debt is being eroded naturally in real terms.

  • 60 E&G July 8, 2022, 9:18 am

    The one thing you can’t do with property is pound cost averaging (or diversification unless you’re a landlord with deep pockets) so market timing and ‘stock picking’ is key from an investment point of view but most of us don’t have much of a choice in the matter, constrained by circumstance and geography.

  • 61 JohnG July 8, 2022, 10:09 am

    @TI – Don’t suppose I could tempt you to admit to a bit smugness when you look back at the comments from a decade ago rubbishing the article because houses were obviously a bad investment and overpriced 😉

  • 62 Kerry Balenthiran July 8, 2022, 3:12 pm

    Hello TI,

    Great original article and 2022 update. I started reading the comments are was very surprised at how heated they were, it was only half way down that I realised that they were from 2012 and not now! Property is always an emotive subject, particularly among those who aren’t on the ladder.

    There is an interesting 18 year property cycle that goes back 100s of years. I first read about it in Moneyweek in 2006 and it has worked like a charm since. The top of the property market is 2006/7 + 18 = 2024/5.

    People will dismiss the cycle which is fine, but it’s something to be aware of imho and I plan to see my BTL property (bought in 2006 with a Northern Rock mortgage) next year.

    Revisiting the past is always interesting, particularly revisiting well thought out analysis.



  • 63 Ben July 8, 2022, 7:16 pm

    Is there a shortage of property? I’m not sure. The main evidence for one is the rise in prices, but there’s another more compelling explanation for that: interest rates have been falling for decades, making mortgages cheaper and cheaper. Property prices have consequently risen all over the developed world. Occam’s razor says falling interest rates are a more likely cause than coincidental property shortages in multiple countries.

  • 64 Ben July 8, 2022, 7:24 pm

    Here’s another reason property investment sometimes beats the stockmarket. Life is essentially a grubby competition for status thanks to our primate genetics. Property ownership allows us to display status and wealth but ISAs don’t. What’s the point of wealth once material needs are accounted for? It’s only remaining value is to win pissing contests. Expensive houses in desirable locations do that more effectively than anything else.

  • 65 Superallyc July 9, 2022, 9:24 am

    Long time reader first time poster. Thank you both TI and Accumulator for all your phenomenal content. Genuinely think Monevator is one of the best FI blogs on the internet so keep up the great work!

    Couple of my observations on the state of uk property, worth bearing in mind that average prices are currently being distorted by a combination of low supply of property for sale, sales of detached properties skewing the average, high demand from buyers and cheap lending. Think it was nationwide or halifax even said so themselves this week.

    I’m currently reading The Greatest Trade Ever (Gregory Zukerman) at the moment and see some parallels when reading this article. Whilst we’re no way near the hysteria levels of 2005-2007, that belief that property only goes one way just cannot be sustainable or affordable (perhaps excluding some key cities in the UK), particularly against the terrible macro factors in the background (increasing uk govt debt to GDP ratio, Ukraine war, covid etc). Just makes me feel there is something unexpected round the corner (next 1-3 yrs) but can’t put my finger on what.

    The guys at PropertyHub.net are really switched on and some of their content on the 18 year property cycle is worth reviewing. Based on that cycle it would put a property downturn in at around 2025/6 I think. Doesn’t seem implausible to me.

    Regardless, as with all things investing, we always say the best time to start is yesterday. The same is really true of property to some extent.

  • 66 Rob July 9, 2022, 10:45 am

    I have an elderly relative who lives with his wife in a very nice older barn conversion near Malvern. Bought in the early 90’s, spent money on an extension, new roof, and now he’s paying me to rebuild two walls on the bridge over the stream in his garden. He says it has kept him poor, despite it being worth probably close to 1mill. Anyway, he has suddenly developed a very keen interest in the idea of population decline, he bought me a copy of the book, “Empty Planet, ” by Bricker and Ibbitson. He wonders how, or if, population decline will cause everything to tank. He (tongue in cheek) imagines signs going up offering land for sale, but the derelict houses must be cleared at buyers expense!

  • 67 PC July 9, 2022, 11:39 am

    Thanks, very interesting article.

    I may be unusual in that I deliberately didn’t choose between property and shares and did a bit of both. To me it’s like passive investing – I accept that I don’t know and try to spread investments around. I’ve been fortunate to end up with a house that I live in with a lot of equity and a SIPP that approaches the LTA from time to time.

    The only time I’ve made a deliberate choice between property and shares has been to not pay off the mortgage and instead put money into my SIPP, even then that was more driven by tax considerations.

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