Is property investment still as safe as houses?

Younger homeowners and investors have missed out on the golden age of property and can no longer rely on house price growth to boost their wealth, new analysis claims.

House prices may be at record highs but economists are warning against relying on property as a store of wealth.

It comes as the appeal of buy-to-let has already been dampened by extra stamp duty rates, restrictions on mortgage interest relief and new rental regulations, all hitting landlord profits.

But even buying a property and relying on house price growth to fund your retirement or access equity can no longer be relied on, a report suggests.

Researchers and economists at Rathbones have analysed the relative performance of equity investment and housing and have suggested the golden age of property ownership ended almost a decade ago.

In fact, the report – titled Don’t Bet the House – suggests you could now make more money from investing in the stock market.

When was the golden age of property?

Younger generations often complain about how cheap it was for their parents or grandparents to get on the property ladder.

This is broadly based on changes to house price to income ratios in recent decades as well as tougher mortgage affordability tests.

Analysing UK house prices since 2016, researchers at Rathbones found that residential property has barely kept up with inflation, growing at 3.7% per annum over the past nine years.

In London, where buyers previously enjoyed the biggest gains, housing did even worse, underperforming inflation by 2.2% a year, with house prices rising at just 1.3% a year.

In contrast, anyone owning a property between 1980 and 2016 has seen house prices grow by 6.7% annually, rising to 8.5% in London, well ahead of London.

Rathbones said this suggested baby boomers born in the 1950s and 1960s have been the main beneficiaries of the golden age of home ownership, while their children lack the same opportunity to build wealth through housing.

Oliver Jones, head of asset allocation at Rathbones, said the earlier boom in house prices was fuelled by factors which no longer hold.

He said: “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.

“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.”

Is it better to invest in property or the stock market?

Stock markets have risen significantly faster than property prices since 2016, Rathbones suggests.

The research found that £100 invested in UK property in 2016 would have been worth £134 in 2024.

But if the same amount had been invested in an indicative portfolio of 25% UK and 75% international equities, that would rise to £174; £100 invested in London property would be worth just £111.

Jones added: “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.”

Is the golden era of property investing over?

Inter-generational conflicts aside, stock markets may have provided high returns but you can’t live in an ISA or pension.

Some may question whether people should be buying a house as a store of wealth.

But Michelle Lawson, director at Lawson Financial, says home ownership is important, particularly for a comfortable retirement.

She told MoneyWeek: “With rents increasing and pensions potentially being battered, paying rent from a pension in later years is near impossible to also live as well.

“By taking a repayment mortgage and having the balance cleared and your home owned, your outgoings are minimalised and future secure. Who knows what the equity growth will be as we can’t see into the future but a repayment mortgage would naturally create equity in the absence of capital growth.”

The question of property price growth is important for buy-to-let investors though.

Capital growth may be slowing, but landlords can still generate an income from buy-to-let without the risks associated with stock market volatility.

The trick is finding the emerging areas of buy-to-let.

The latest rental data from Zoopla shows average rents for new lets are 2.8% higher over the last year, down from 6.4% at the same time in 2024 – the lowest rate of rental inflation since July 2021.

But rents have continued to increase quickly in more affordable areas close to large cities such as Wigan, Carlisle and Chester, where growth is above 8%, according to Zoopla.

Rob Peters, principal at Simple Fast Mortgage, said property investing isn’t dead, it’s just constantly evolving.

He told MoneyWeek: “Gone are the days of easy capital gains for doing nothing.

“Now, successful investors need to be smarter, focusing on adding value, developing, or targeting high-yield niches like HMOs, supported housing, or commercial conversions.

“Stocks have their place, but property remains the only asset class where you can leverage other people’s money to build wealth and cash flow at scale.”