Katharina Knoll, Moritz Schularik and Thomas Steger, three German economists, have compiled house price indices going back to the 19th century. These show that, between 1899 and 1938, UK house prices actually fell in real terms, by 1 per cent a year. This was not a quirk of the UK. The authors show that on average across 14 developed economies, house prices were flat in real terms between the late 19th century and mid-20th century. It is only since the 1950s that house prices have risen much.
If this long sample of history is representative of likely future returns, then housing is a poor investment. UK house prices have risen by only 0.4 per cent per year since 1899. That compares with a total return on equities (including dividends) of 5.6 per cent. Such a low return is not enough to compensate us for the risk of house prices falling and - worse still - of the risk that they'll fall during a recession when we lose our job and so most need wealth.