Slow and steady or high-risk high-reward ..
House price inflation has been steadier than other kinds of investments in recent years, offering consistent appreciation not seen with a number of other commodities. Warwick Estates analysis shows that between 2020 and 2021 prices have risen by 8.3%, far lower than the majority of other commodities on the investment market, with Bitcoin seeing the highest increase at 430%. However there’s a consistency with house price inflation not seen in a number of other assets and with many looking to bricks and mortar as a long term investment, there are far worse investments to make.
While homes have seen their values appreciate by an average of 3.1% annually over the past five years, the cost of natural gas has fallen by a typical -3.9% per year, while crude oil has also dropped in value by -1.6% annually. UK house prices have also proved a better investment than platinum, which has seen prices fall by -3.5% on average over the last five years.
Better investments than house prices
Despite the strength of house price appreciation, a number of commodities have seen stronger average returns over the last five years than property. At 226% a year on average, Bitcoin sits top of the table with silver (8.2%), corn (5.9%), gold (4.4%) and wheat (3.6%) also bringing a better return when compared to UK property. However, these assets are arguably more prone to fluctuations than house prices, which have tended to rise consistently since the recovery from the global financial crisis. Unlike with these other commodities, if you purchase a home as a buy-to-let landlord you’re able to recoup costs in the form of rental income from tenants.
Downsides to property investment
That’s not to say that investing in property doesn’t have its downsides. Firstly of course, with property you’re unlikely to make the heady returns seen with some of the riskier asset classes, where you could double your money if you play your cards right.
Being a homeowner also comes with costs. Most homeowners are saddled with mortgages to pay over the long-term, while there’s a chance monthly payments rise, depending on whether the Bank of England hikes the base rate. As a homeowner, you also have extra costs to contend with – whether the boiler breaks down or you need to make repairs to the roof. Although prices have been stable for some time in the UK, the value of property can’t always be relied upon.
Indeed, the 2008 global financial crisis saw house prices fall by 20% in 16 months, while in some areas of the UK they are yet to recover to pre-2007 levels. While property is relatively reliable, no investment is risk-free.
|Table shows UK property price growth vs other commodities over the last year and average five year growth|
|Type||Category||Currency||Ave price – May 2021||Change – 2020 to 2021||Average nominal (median) change 5 years|
|Cryptocurrency||Bitcoin||$ / BTC||50,013||429.5%||226%|
|Commodities||Silver||$ / troy ounce||27||53.6%||8.2%|
|Commodities||Corn||¢ / bushel||760||133.8%||5.9%|
|Commodities||Gold||$ / troy ounce||1,834||6.2%||4.4%|
|Commodities||Wheat||¢ / bushel||754||44.7%||3.6%|
|House price||UK house price||£||250,341||8.3%||3.1%|
|Commodities||Brent Crude Oil||$ / barrel||69||82.1%||1.2%|
|Commodities||WTI Crude Oil||$ / barrel||66||85.1%||-1.6%|
|Commodities||Platinum||$ / troy ounce||1,231||46.8%||-3.5%|
|Commodities||Natural Gas||$ / million BTUs||3||63.3%||-3.9%|
|UK house price data source from the UK House Price Index|
|Commodities data sourced from Trading Economics and CNN|
COO of Warwick Estates, Emma Power, commented:
“The UK property market has proved a consistent platform for investment in recent years, despite a prolonged period of Brexit uncertainty, and more recently, the problems posed due to the pandemic. The ability to invest in bricks and mortar ranges from professional investment at the top level to the amateur investor opting for the Buy-to-Let sector. So it is far more accessible as an investment class for those with little to no investment experience.
“While returns might not match that of other investment options, UK real estate is far less volatile asset class compared to the likes of cryptocurrencies and this suits the long-term approach to investing in property. Unlike a number of other assets, the government also has an interest in keeping the UK housing buoyant. Property market prosperity has long been claimed as an indicator of economic success and the ability to demonstrate this has seen the government introduce various initiatives to keep house price growth climbing.”