The Best And Worst Properties To Own

Which properties increase in value most? Which fall furthest in a crash? We crunch the numbers to find out.

Recently, I've been crunching data from the Halifax House Price Index (HPI) in order to learn more about the latest housing boom and the previous crash. You'll find my results here, here, here and here.

In response to these articles, several readers asked which properties increase in value the most, and which fall behind. The Halifax HPI doesn't include data according to type of property, so I can't analyse flats, terraced, semi-detached and detached homes separately.

However, I can partially answer this question by looking at five different datasets, as follows:

(The following data are not seasonally adjusted; this makes little difference to the results.)

Halifax HPI data for UK, 1983 to 2007

1. All properties

*High/Low*	*Average* *price (£)*	*Change*	*Annualised* *change (%)*
Start: 1983	30,898	N/A	N/A
Peak: 1990	68,950	+123% in 7 years	12.2
Trough: 1995	61,666	-11% in 5 years	-2.2
Peak: 2007	196,478	+219% in 12 years	10.1
1983-2007	N/A	+536% in 24 years	8.0

So, over the past 24 years, house prices have risen by an average of 8% a year compounded. UK property values more than doubled between 1983 and 1990, before losing ground over the next five years. However, in the twelve years from 1995, they more than tripled. It's no wonder that so many people view property as a terrific investment!

2. New properties

*High/Low*	*Average* *price (£)*	*Change*	*Annualised* *change (%)*
Start: 1983	34,795	N/A	N/A
Peak: 1990	72,290	+108% in 7 years	11.0
Trough: 1993	67,856	-6% in 3 years	-2.1
Peak: 2007	191,372	+182% in 14 years	7.7
1983-2007	N/A	+450% in 24 years	7.4

As you can see, rise in value of new properties hasn't been as steep as properties in general. However, it's worth noting that the low for new properties came earlier (1993) and the ensuing boom lasted for fourteen years.

One reason why the value of new property hasn't risen as steeply is because many new properties are built during the boom times, when house-builders are most confident. This increases supply and, therefore, reins in price rises. Indeed, it seems that new-build flats are springing up everywhere I look these days. Also, over time, the new/old mix changes as `new' properties become part of the `old' housing stock on resale.

3. Existing properties

*High/Low*	*Average* *price (£)*	*Change*	*Annualised* *change (%)*
Start: 1983	30,350	N/A	N/A
Peak: 1989	68,732	+126% in 6 years	14.6
Trough: 1995	61,099	-11% in 6 years	-1.9
Peak: 2007	197,384	+223% in 12 years	10.3
1983-2007	N/A	+550% in 24 years	8.1

While new properties have underperformed the market as a whole, so existing properties must have outperformed it. The difference over the entire 24 years is quite pronounced: a 550% gain for existing properties, compared to 450% for new builds. Then again, a buyer is hardly like to remain in a new property over 24 years, given that most of us move several times in this timescale.

I can think of at least two reasons why old properties tend to beat new builds. The first is the `new-build premium' that buyers pay to obtain a brand-new home. The second is the artificial boost given to new-build values by the use of cashback and other upfront incentives. This market rigging goes a long way to explain why recent buyers of new-build properties are in for a shock when they have their properties valued further down the line!

We've looked at new versus old properties; now let's explore the relative success of first-time buyers and home-movers:

4. First-time buyers

*High/Low*	*Average* *price (£)*	*Change*	*Annualised* *change (%)*
Start: 1983	22,199	N/A	N/A
Peak: 1990	49,433	+123% in 7 years	12.1
Trough: 1995	45,341	-8% in 5 years	-1.7
Peak: 2007	148,398	+227% in 12 years	10.4
1983-2007	N/A	+568% in 24 years	8.2

As you'd expect, first-time buyers (FTBs) tend to buy starter properties, which are priced well below the average for all properties. Nevertheless, the average house price for FTBs has risen by 568% in the past 24 years, which outstrips the growth of the UK as a whole.

Thanks to soaring prices, today's FTBs are having to dig deeper than ever before, such as saving a substantial deposit and then borrowing up to six times their income. Frankly, if I were in this position today, I'd fear for my financial future!

5. Former owner-occupiers (home-movers)

*High/Low*	*Average* *price (£)*	*Change*	*Annualised* *change (%)*
Start: 1983	36,219	N/A	N/A
Peak: 1989	81,041	+124% in 6 years	14.4
Trough: 1995	72,738	-10% in 6 years	-1.8
Peak: 2007	219,595	+202% in 12 years	9.6
1983-2007	N/A	+506% in 24 years	7.8

Between 1983 and 2007, the value of a typical property bought by home-movers increased by 506%, compared to the 568% increase in FTB properties. One reason for this could be that FTBs tend to pay top prices during booms, because of their desperation to `get on the property ladder'.

On the other hand, home-movers usually have higher incomes and larger equity (the difference between a property's value and the mortgage outstanding on it). Thus, they may be more cautious and avoid over-paying -- perhaps because they are reaching up a rung on the property ladder, rather than starting out.

In summary, I wouldn't read too much into the above data. However, it is clearly the case that first-time buyers tend to take greater risks. Also, older properties tend to grow their value better than new-build homes. Thus, if I were a FTB buying a new-build property today, I'd be exceptionally worried!

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