Briefing No 8. The case for property investment

Abstract

The private rental sector (PRS) has seen a steady increase since 2000. This reflects complex societal changes which are taking place across the UK and beyond, not least increased demand from students, mobile professionals, international migrants and those willing but unable to buy their first home and the contraction of other renting options through Right-to-Buy policies. However the growth of the PRS cannot be truly understood without reference to the broader investment landscape. This briefing documents long-term investment returns of residential property versus those of other assets. It shows that, on average and particularly during the last two decades, total returns from investment in residential rental property have outperformed those from other investment vehicles such as savings products, government bonds, equities and commercial property. Given the low interest rates adopted by central banks since 2009, UK mortgagors as well as buy-to-let landlords have been better off than anyone saving in a bank account, including through a tax-free ISA. Moreover house prices have by now recovered in many regions and places, delivering some capital growth in addition to rental income (but many instances of negative equity still remain).