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Has Housing Been the Best Way to Preserve Purchasing Power of Money in 21st Century Britain?

Housing-Market / UK Housing Dec 27, 2014 - 08:12 PM GMT

By: Mario_Innecco


If you are chatting to people down at the Red Lion or the Bullʼs Head about investments this Christmas season I am sure 99%, if not 100% of them, would say that housing has been and always is the best place to put your money in. I would not blame them either as the U.K. populace has always been attracted to the real estate market and renting is not the British way of doing things. An “Englishmanʼs house is his castle” comes to mind! So if the asset that is held most dearly to the British starts going up in value they will notice and the newspapers and the press in general will let them know.

With the above-mentioned in mind I have looked at some numbers comparing the appreciation of housing and other assets like currencies, precious metals and the stock market for the last fifteen years of for the 21st century.

One of the two main investment measurements looked at in the U.K would naturally be housing and the stock market. I have looked at the FT-100 index as a measure of stock prices and found out that since the end of 1999 until the end of 2014 (24-12-14) this benchmark index has dropped 4.52% in nominal terms so if you have had some of your money in the stock market since the beginning of the century you have not really done too well in nominal terms and if one were to adjust that loss to the rise of 45.4% in the RPI index (government cost of living measure) I guess it would be fair to say that you have lost 50% of your purchasing power.

The second benchmark or measure I have looked at is the Nationwide Average U.K. House Price. This index has performed much better than the stock market as it has gone up by 253% in nominal terms in the 21st century and if one subtracts the increase in the RPI index from it one would still have gained, on average, over 200%.

What if one had exchanged their pounds into U.S. dollars at the beginning of the century? Wouldnʼt that have been a good investment? Especially with all the talk right now of how well the dollar is doing? I am sorry to disappoint all those who think of the dollar as a “hard currency” but a U.K. investor would have only gained 3.7% this century and if you adjust for the RPI Index your dollars would have lost almost half of your purchasing power!

So you might say: “housing is the best investment then!” but what if I told you that it is gold that has been the best investment for these last fifteen years? You will probably say that gold has crashed since 2011 and you would be right but if one were to look at the facts one would be very surprised. Had you bought a gold sovereign at the beginning of 2000 you would have paid about £43 for it while today you will be paying around £180 which corresponds to an increase of just under 420% in nominal terms. I have to admit that one can not build a house out of gold bricks but the point here is that once you have taken care of your housing arrangements and needs, gold has been the best way to maintain and even increase the purchasing power of the money you have been able to save.

By Mario Innecco

At ForSoundMoney we stand for a hard currency. We believe in a monetary system based on commodity money and a free-market banking system where central banks are non-existant.

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