The longstanding Scottish obsession with property as a means of building wealth is outdated, as today’s house buyers will not match the gains of past generations.
That’s according to wealth manager Rathbones, whose researchers and economists analysed the relative performance of equity investment and housing in Scotland, broadly over the past century.
The report concludes that the boom years in property investment, which lasted from the 1980s to the mid-2010s, are now over.
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Analysing Scottish house prices since 2016, researchers found that residential property rose 4% per annum over the past nine years, barely keeping up pace with inflation, at just 0.3 percentage points above.
This is in contrast to the experience of previous generations, mostly benefitting the so-called Baby Boomers born in the 50s and 60s, whose property ownership between 1980 and 2016 came when Scottish house prices rose at a rate of 5.8% annually; well ahead of inflation.
Since 2016, stock markets have risen significantly faster than property prices, with the research finding that £100 invested in UK property in 2016 would have been worth £136 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.
“The idea that you can’t go wrong with bricks and mortar just isn’t true,” said Angus Kerr, head of Scotland at Rathbones. “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.
“The earlier boom in house prices was fuelled by factors which no longer hold – the huge decline in interest rates from their generational high in the early 1980s won’t be repeated.
“Homebuilding in Scotland is rising after decades of very low rates and 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,” he added.
On a long-term view, looking back over more than a century across the UK, Rathbones found the average house price hovered around four times average annual earnings between 1910 and the late 1990s.
However, after 2000 this more than doubled, with house prices rising to as much as eight times average earnings, leaving property much more expensive for the typical buyer.
Further, after decades of low interest rates, global instability has created volatility in financial markets fuelled inflation, pushing up mortgage interest rates. This has further impacted affordability for most first-time buyers and reduced the appeal of buy-to-lets and second homes used for holiday lettings bought using mortgages, acting as a drag on house prices.