Wealth was surging in Britain long before Covid and energy bills got in on the “going through the roof” act. Official data last week showed household wealth rose to £15.2tn pre-pandemic. Despite a huge recession, it is likely to have defied all economic logic by growing further since, thanks to double-digit house price growth.
Booming house prices in recent decades have made London’s homeowners the richest in Britain, but they also ensure that it’s our wealth inequality capital, with an army of asset-less renters. Does this mean property investors would have done best by investing in London or other global cities such as Tokyo and New York where house prices have boomed? Nope, says surprising new research examining 150 years of data from 15 countries.
In fact, overall long-run returns are better outside big “superstar” cities because of higher rental yields elsewhere. What’s driving this? The authors argue these higher returns make sense as compensation for the increased risk of buying property outside major cities where housing markets are more volatile and less liquid. So, despite what everyone says, the big city is the place for those who want to play it safe. Bold investors should head to the provinces.
That’s obviously what loads of people have done during Covid lockdowns, which is why we’ve seen far stronger house price growth in rural areas. But before you get too smug, don’t forget the longer-term lesson of this research: your new rural idyll’s value could be in for a bumpy ride.
• Torsten Bell is chief executive of the Resolution Foundation. Read more at resolutionfoundation.org
