The shares or property debate remains heated, especially in housing-obsessed New Zealand. Given the one-eyed nature of many people, it's probably a somewhat futile argument.
While leaning toward shares, I see the attraction of property. But I think many people have a slightly misguided view of houses as an investment. They overestimate the returns, and underestimate the risks.
Since 1980, NZ shares have returned 11.4 per cent annually. House prices are up 8.4 per cent over the same period, according to the Reserve Bank.
The share returns include cash dividends (which have imputation tax credits attached), so we need to add net rental income into the equation for property, which requires some guesswork.
The national average rental yield, according to QV, is 4.3 per cent. That's before costs, so let's assume annual rates, maintenance and so forth all account for 1.5 per cent of the property value. Tax what's left and you have a net yield of just under 2 per cent.
You can see why property investors are so reliant on ever-increasing capital gains, given such a paltry income.
If I crudely add that to the aforementioned 8.4 per cent, the property return increases to 10.3 per cent. Using those numbers, $10,000 invested in shares in 1980 is worth $484,000 today, while in property it has grown to $335,000.
Another limitation with housing data is that it doesn't fully account for what people invest. Some spend a fortune on renovations, which artificially boosts perceived price movements when these improvements find their way into sales figures.
Owning shares simply means being part-owner of a business, and something is amiss if businesses can't deliver superior long-term growth than houses. In exchange for higher returns, investors face more ups and downs along the way.
However, property certainly isn't risk-free. House prices go down too, just not as much. There have been five periods during the last 25 years where house prices have suffered declines.
It's hard to diversify, in contrast to shares where investors can easily spread their risk. Property is also illiquid, making it more difficult to sell if the market isn't as buoyant as you'd like.
Leverage is a key reason people favour property investment, given the willingness of banks to lend heavily against housing. Debt supercharges returns so it works well in a rising market, but it can have damaging effects when prices fall.
You could borrow against the house and do the same with shares, with the interest being tax deductible in the same way, but it's risky, given the higher volatility.
Some property people will never touch shares. Likewise, some share investors see property as too much hard work for relatively modest rewards. The NZX50 gross dividend yield of 6.5 per cent from shares certainly stacks up well against rental yields.
Shares and property have many fundamental value drivers in common, but they are also very different. I'm not sure there is a clear winner.
I also suspect the more astute investors don't waste their time having this debate, but rather acknowledge the pros and cons of each, and simply own both.
Mark Lister is head of private wealth research at Craigs Investment Partners. His disclosure statement is available under his profile on www.craigsip.com. This column is general in nature and should not be regarded as specific investment advice.