Duelling Fools: Shares vs Property

In the early 1970s, I had just bought my first house (which was in NW London) for the princely sum of £9800 (nine thousand eight hundred pounds), (upon which I'd got a mortgage of £9000 over 20 years at SVR). About the same time shares in Land Securities were hovering about £4.60 or so. I remember that because a few years ago when LS shares almost got to £25, I used to wish having bought some long ago.

Fast forward to now, in the aftermath of the property slump, LS shares are still under £5 whereas, according to NetHousePrices, a house in the road where I used to live would set you back around £250,000-£300,000.

Of course, over the years LS shares have paid a dividend and really that should be added on. But arguably the dividend from a property for occupation is the enjoyment, etc you get from living in it. The other advantage of owner-occupation property, and it's an advantage that should never be underestimated, is there is no tax on a principal private residence when you come to sell, whereas there is on selling shares (albeit subject to CGT relief/allowance of circa £9,000)

Strictly, presenting the case for shares or property is a bit of a non-starter if you are not comparing like-with-like. Although valued on a similar basis, a property for own-occupation is not in the same category as one that is let, such as BTL or, in the wider world, a commercial property investment let on lease.

In fact, in the commercial property market, the potential for making considerable capital and rental gains long-term most probably comfortably exceeds shares/equities.

Buying a house to live in is not an investment. I mostly invest in shares but I also have somewhere to live (and I own it). If you want to turn your own house into an investment you could buy a larger house than you need, but to compare this with shares you would have to factor in the extra tax, stamp duty and mortgage payments, the risk inherent in a leveraged investment and the loss of liquidity.

Forty years ago I bought a large house for 5K.
People thought I was mad, as a 1930`s house was about 2K. I never had the large family I hoped/anticipated. 8 years ago, I sold the house for half a million!!! Certainly I spent some money on it over time, but I also bought some Woolworth shares and held them for a long time.
What price Woolworth shares??? My vote says property, property, property!!!

Bravo, Mr Watson, for tossing a wrench into TMF's comments.
To my knowledge, the long-term, say 100 years, nominal rate of return on property is about 8%/year.
In the short term, say since January 1984 when the FTSE 100 was inaugurated at a nominal value of 1,000, the average UK house price was about £29,500 (Source: Nationwide).
Any conclusions about rates of return depend greatly on which deflator is used to reach real values. On balance I pefer Measuringworth's Average Earnings deflator because the issue under debate is income/wealth.
By 2007 (latest available year on Measuringworth), and on the basis of average UK earnings, the average UK house price in January 1984 was equivalent in real terms to about £100,000. By mid-2007 average UK house prices were about £182,000.
Correspondingly, £1,000 invested in the FTSE 100 in January 1984 was equivalent to about £3,400.
In 2007 the FTSE 100 index wandered around a rough average of 6,300.
Converting the two asset groups into annual real rates of return, we get a rate of about 2.7% for the FTSE and about 2.6% for houses! Hardly a reason to get one's %$£ in the air!
The two big advantages of a stake in the economy are that equities don't need a coat of paint every five years -- they usually even provide an annual income of about 3% -- and with rare exceptions they can be converted into cash with a telephone call. The big disadvantages of equities are that they make poor shelter, and the taxman meddles in the potential greater efficiency of the market.
Bravo, Mr Watson!

Love is often lost in exchanges between property pundits and those who prefer their money in paper or electronic certificates. Nevertheless the share vs property debate provides a fascinating insight into our ability to think rationally at times.

Playing with the house money because it has beaten shares in the past is a risky game. It is unrealistic to assume this will always be true. Property as a share of wealth can't and won't increase indefinitely. It has had had a great run over the last decade and a half with tax, political and fashion trends lending it a hand.

But worst of all, much of the recent pre crash growth was matched by an increase in borrowing. Borrowing that depends on our capacity and willingness to repay. Both are diminished. Where is the wealth going to come from to make good on our debts? A lot of hard graft I suspect.

@Foxyweasel
True to your occuaption, you appear to be advocating yesterday's news. Impressed as I am by your citing Fama and French, may I remind you of their devastating attack on the traditional Capital Asset Pricing Model, the basis of Modigliani's diversification model.
As they and other economists, especially behavioural economists, raise serious questions on traditional metods of asset pricing and therefore on asset allocation. Of all the usual assets, property and the pricing of it are a major focus of their attention, closely followed by the pricing of securities. Economic goods and financial goods behave in startlingly different ways!
An embarrassing contradiction arises in your post. You say "... it is impossible to time the markets consistently ...", yet rebalancing a portfolio "... means selling some assets high and buying others low." So, rebalancing a portfolio of assets calls for the impossible!
Personally, I don't know whether it's "impossible to time markets consistently". What I think I know is that fund managers don't do so most of the time, so they take our money, make a handsome living for themselves from doing so, and with rare exceptions leave us investors with their wreckage. That's how well asset allocation is done in the real world, presumably because fund managers and financial planners don't really understand how markets actually work.
Can't say I blame 'em: it's a tough nut to crack! Stick at it!

"Love is often lost in exchanges between property pundits and those who prefer their money in paper or electronic certificates."

I have paper titles to my house and to my shares. Only my precious metals have no certificates of ownership.