You may have heard people talk about the “18-year property cycle.” What does it mean? And where are we in the cycle right now?
According to experts, the economy rises and falls like clockwork. “We know that for centuries, the land value cycle has operated on an 18-year basis,” economist and director of the Land Research Trust, Fred Harrison told The Epoch Times. “The fact is, there is a very clear 18-year pattern, which is always intersected with a mid-term recession.”
Amar Manzoor, author of The Art of Industrial Warfare and creator of the 7Tao training system for manufacturing standards, agrees, describing the 18-year property cycle as “the Achilles heel in the performance of Western economies.”
In a 2010 report, Steve Hanke of think tank Cato Institute attributed the problem to the land-value cycle, which has a knock-on effect on the construction cycle, the business cycle, and consequently the overall economy.
“With the exception of World War II, the peak of most real estate cycles is roughly every 18 years,” wrote Hanke. He shows this has remained mostly consistent over the last 200 years with land value peaks in 1818, 1836, 1854, 1872, 1890, 1907, 1925, 1973, 1979, 1989, and 2006.
Harrison successfully predicted that housing prices would peak in 2007 in his book Boom Bust: House Prices, Banking and the Depression of 2010. He also previously predicted the 1989 peak and the 1992 property recession, which coincides with the 18-year model. According to Harrison, there are 14 years of stability or growth after a crash, followed by 4 years of recession. The cycle can also be broken up further into components of 7 years of slow, steady growth, then a mid-cycle recession occurs, followed by 7 years of rapid growth. After the final two years of the fastest growth, the prices will crash and 4 years of recession will follow straight after.
So where are we in the cycle right now? Using Harrison’s model, we’re coming up to a mid-cycle dip in 2018. If we take London as an example, it has followed the model of slow growth right after a market crash for several years, then rapid growth for the second half of the cycle. Based on previous patterns, this suggests we could be in for a property market tremble soon.
However, not all economists believe in the 18-year residential property price cycle. It isn’t a precise rule, says Graeme Leach, chief executive and chief economist of Macronomics. “My problem with 18-year cycology is what happens to the house price to income ratio?” he writes on City A.M. “An 18-year cycle peaking in the mid 2020s would surely require house prices to rise by less than incomes, or only a little faster, for most of the period?” Figures from Hometrack in 2016 revealed that London houses cost 14 times the average earnings and that house prices have risen 86 percent since 2009.
Whatever are your thoughts on the 18-year property cycle? Does it influence your long-term investment decisions? Let us know in the comments below.