PwC warns of 'slowth' decade for house prices

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PricewaterhouseCoopers' prediction places it alongside other forecasters, Capital Economics and the National Institute of Economic and Social Research (NIESR), which have a less than optimistic outlook for the UK housing market.

PwC estimates that prices have already fallen 17pc in real terms, after adjusting for inflation. Although it believes prices will rise at 2pc a year for the next decade, they will not recover the ground lost until 2020.

NIESR is more pessimistic, forecasting that house prices will fall 8pc in the next five years once inflation is taken into account. Capital Economics has been gloomier still, predicting a crash of over 20pc in the next two years as house prices re-establish their traditional link with earnings.

Average house prices roughly tripled under Labour from £77,531 in 1997 to £212,453 in the first quarter of this year – having peaked at £220,000, according to the Department of Communities and Local Government, delivering huge returns for some homeowners even after the recent crash.

PwC said property remains a relatively good investment but will deliver "slowth" rather than growth over the coming years, as price increases are limited to 2pc annually compared with the 4pc long-run average between 1984 and 2007.

The firm expects a buy-to-let property to deliver "total real return of 3pc" compared with the 1pc risk-free rate of buying index-linked gilts. However, PwC said investors would be better off putting their money in shares than bricks and mortar over the coming decade, with equity delivering 5pc returns, albeit accompanied by "higher risks" – broadly in line with long-term historic average for the UK over the period since 1900.

John Hawksworth, PwC's chief economist, said: "There remains significant uncertainty in the UK housing market and it seems probable that it is set for a protracted period of relatively slow growth by historic standards. Housing is certainly a significantly riskier asset than index-linked gilts, although not as risky as equities.

"Our analysis suggests that, as an investment, housing is similar in terms of both risk and expected return over the next decade to a 50/50 mix of equities and index-linked gilts."

Source: PwC warns of 'slowth' decade for house prices - Telegraph