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OPINION

The property puzzle

The property puzzle
August 6, 2020
The property puzzle

There are many facts to support the anecdotal view that Britain’s love affair with property extends far beyond the realm of celebrity landlords. According to the Office for National Statistics, 35 per cent of the UK’s net household wealth is held in residential property. Only private pension savings is bigger, at 42 per cent, but let’s not forget that much of that wealth is also likely to be held in commercial property, either directly or through shares in funds and Reits – research conducted by Toscafund several years ago on behalf of the British Property Foundation estimated that a fifth of the UK’s overall net wealth is in commercial real estate.

For those saving towards a pension today, frugal corporate schemes and high living costs mean many are forced, financially, to prioritise property over pensions – for one thing, you can’t live in a pension. Then there is the importance of property to the economy. Traditional measures put property’s contribution to the UK’s GDP at 7 per cent, but Toscafund suggests this massively underestimates its impact on other sectors of the economy. Consumer spending, in particular, is widely understood to be closely linked to confidence in the housing market – if households think their livelihoods are at risk, they will prioritise paying the mortgage over a new sofa. Remortgaging has often been a direct source of funding the British tradition of ‘keeping up with the Joneses’. Property-related employment is itself also huge – 6.6 per cent of the UK’s workers are in construction, on top of an army of those servicing the sector, from estate agents to cleaners to mortgage brokers and bankers. 

It is little wonder that in the wake of the coronavirus the government is doing everything it can to keep the sector alive – arguably continuing a long trend of policy stimulus for the property market, but which may still not be enough to head off trouble further down the road. Commercial property has not been so lucky – years of soaring demand have been undone in a matter of months, as investors contemplate permanent behavioural shifts as a result of coronavirus that render huge swathes of shops and offices redundant. 

Given the economic importance of property, these structural shifts are being felt in investors’ portfolios, and could perhaps undo some of the thinking that has seen property’s mere tangibility as evidence enough of its safe-haven status. It is certainly not as liquid as our celebrity friend thinks, and as the Brexit-related redemption rush from property funds proved. Indeed, as a nation we may be obsessed with property, but it is often poorly understood as an asset class – that’s why we’ve launched a dedicated property section this week, which you’ll find on page 64.