What if the narrative you’re used to hearing about UK property prices, was entirely wrong?
It’s a bold question, but so are the claims we’ve all heard – “you’ll never lose money in property” and “property only goes up in value”.
The problem is the numbers paint a very different picture.
Why do real returns matter most?
Before we can really get stuck in, it’s important we focus on the returns that matter.
Those are “real” inflation-adjusted returns – i.e. the ones you see after accounting for our ever increasing living costs.
Think of it this way – if your investment goes up by 1% and living costs rise by 2%, in real terms you haven’t made any money, you’ve actually lost it.
And it’s through this lens we have to think about house prices (and all other investments).
What have real UK property returns averaged?
The UK building society Nationwide has been producing a UK house price index, that goes back to 1975.
Their real return data, shows us how house prices have actually evolved over the last 50 years.
Trend line growth has been 2.2% above inflation – not bad on first inspection.
But when we look a little closer, it’s reasonable to question if a trend really exists at all.
You see in inflation adjusted terms, there has only been a single 8 year period of sustained property price growth, in the last 50 years!
If you missed that 8 year period, your property investment didn’t grow in a value at all, after considering the impact of rising living costs.
From 1975 to 1995 real UK house prices grew by 0.93% – not per year, in total.
From 2003 to 2026 real UK house prices shrunk by 0.22%.
Combined that’s almost 43 years of no meaningful growth.
The only period where investors really saw meaningful real returns was 1996 – 2003, where prices more than doubled.
But that’s not much of a trend is it, if anything it’s an exception, and the trend is flat.
What about maintenance costs?
We have good sources about real long-term house prices, but price alone isn’t the full picture.
It doesn’t account for how much of that growth (or lack of) is down to improvements or maintenance.
Think about it this way, if you bought a house in 1975, and by 1995 you:
- never repainted it
- you kept the same kitchen and bathrooms
- the original carpets
- the same boiler
- the same single-glazed windows
- you never fixed anything on the roof…
Would it be reasonable to expect its value to stay the same? Probably not.
There’s a lot of improvement costs hidden in property price growth.
One of the few studies on that does cover this (Chambers, Spaenjers & Steiner, 2021) looked at a variety of UK university property portfolios which covered residential, commercial and agricultural land. These weren’t just the university buildings, but also those owned as an investment by the endowment.
For housing they found total costs were typically around 32% of the income a property produced. This was mostly maintenance and improvement costs, but also includes taxes, management fees etc.
Whilst a little opaque, we could probably ballpark these maintenance costs at 0.5-1% of the property value each year.
Another hit to long-term real returns.
In summary…
The investment perspective on UK property, is probably far less optimistic than the glossy brochures would suggest.
Of course, if you need somewhere to live, owning a home isn’t a bad idea.
That said, if you’ve bought a big house, with the hope to downsize to fund retirement, it’s long-term price appreciation may be lower than you actually need.
And those with buy-to-let portfolios may want to reassess the returns they can expect – it’s mostly from rent not price appreciation.
