Myth-Busting: Money Printing Must Create Inflation

Perhaps it just leads to lower returns.

April 2021. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • The link between central bank policy, money supply, and inflation seems to have changed
  • QE money printing had no substantial impact on inflation, aside from asset price inflation
  • More direct stimuli might change that


London ranks ninth on the UBS Global Real Estate Bubble index for residential properties. Like in many other countries, property prices in the United Kingdom reached an all-time high in 2020. A global pandemic with sudden mass unemployment should have forced UK citizens to sell their homes, but the furlough policies, stamp duty holidays, and record-low interest rates more than counterbalanced that.

A two-bedroom apartment with 1,000 square feet of living space in a posh neighborhood like Hampstead in North West London costs about £1.5 million. The rent is approximately £3,000 per month, which equates to a measly gross rental yield of 2.4%. After accounting for maintenance and taxes, it’s more like 1.7%. Many of the houses in that area are more than a century old and need lots of love.

Although such a low yield may seem unattractive to buy-to-let owners, it was considerably worse throughout most of the last decade when the cost of financing was above the rental yield. Buyers were purely betting on price appreciation and willing to accept negative cash flow during their investment period.

Now, thanks to COVID-19 and the Bank of England (BOE), financing costs are less than the rental income, and the cash flow of property investors has turned positive. For those considering buying a property for their own use, paying interest and amortization is now often cheaper than renting. What an odd world.

But buying an apartment in neighborhoods like Hampstead tends to require at least 25% of equity as banks have become more conservative since the global financial crisis (GFC). If a potential buyer was successful enough to save about several hundred thousand pounds for a down payment, they’ll still need to eventually repay the £1.1-million loan. From a pre-tax perspective, this implies almost twice the amount of money that needs to be earned.

Some potential buyers are actively betting on inflation to help reduce the d