Why real estate investing is a great way to hedge against inflation

Why real estate investing is a great way to hedge against inflation

Last updated
May 2022
4 min read
Written by
Grace Du
  • Inflation has been an impacting force on Canadians’ lives in a post-COVID world.
  • During periods of high inflation, it’s important to invest your money carefully to preserve its value.
  • Despite periods of high inflation, residential real estate has historically performed well.
  • Historical data has shown residential real estate outperforming REITs, stocks and bonds during periods of high inflation.

What is inflation?

As the global economy restarts post-COVID, inflation has been a major topic of concern. The inflation rate in Canada is 6.7% in March 2022, which is an all time high since 1991. What this means for you is that you’d have to pay $106.7 today for something that cost you $100 a year ago. Just about everything we buy is more expensive now than it was. But what are the fundamental drivers of inflation, and how did we get here?

Remember the principle of supply and demand — when the demand (money available to buy goods & services) increases but the supply (goods & services) remains the same, the supply (goods & services) becomes more expensive. 

During COVID, governments created enormous amounts of money and passed stimulus bills to inject money into the economy. This extra money temporarily made up for lost wages and sales during the COVID lockdowns. But once the economy restarted, all of those extra dollars remained in circulation. Since the amount of goods and services really hasn’t grown, we are left with more dollars buying up the same amount of goods and services, pushing prices up (aka more people trying to buy the same number of goods).

Residential real estate historically performs well in high-inflation environments.

During high inflation, you need to invest your money carefully to preserve its value. Historically, residential real estate has done well in times of inflation. Why?

  1. People need places to live.
  2. A government can print more money, but it can’t make more land. So there are more people trying to buy the same number of houses. 

Past data bears out this reasoning. Research by USAA Real Estate showed that during the last period of high inflation (1978-1981), direct residential real estate outperformed REITs, stocks and bonds and carried much lower risk during that period.

How to invest with Lotly

Lotly is unique in how it allows passive access to residential real estate. With investments as small as $1,000, retail investors can diversify their portfolios by directly investing in prime-market home price appreciation. By attaining shared equity through down payment assistance, you become co-recipients of the property's appreciation over time, without any further involvement.

As more and more dollars continue to bid up a fixed amount of real estate supply, many individuals are getting locked out of this asset class because of the large amount of capital needed for a down payment. Lotly lowers the hurdle to a far more affordable price point. 

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Grace Du
Co-founder at lotly
Grace is a data scientist and an engineer, previously at Ritual & Shopify. She is the brain behind Lotly’s exclusive data analysis, and a subject matter expert on real estate market in Ontario.