- Introduction
- The Property Cycle
- 2008 Was About Land
- 2026 Is The New 2008
- The Signs
- It Doesn’t Have To Be This Way
Introduction
I’m writing this article as a bookmark of sorts. After financial disasters such as the great depression or the 2008 market crash, many are quick to come out of the woodwork and retroactively diagnose their causes. Hindsight, however, is 20/20. What’s far more compelling, is to predict disaster before it strikes.
The 2008 financial disaster was part of a larger repeating cycle. We are due for a similar crash very soon. I want people to understand the cycle that I’m referring to, and why it will repeat. Perhaps with this knowledge, we can collectively break the cycle, and pave the way for a new kind of economy.
The Property Cycle
The 18-year property cycle was discovered by economist Homer Hoyt, who wrote about it in his 1933 book, “100 Years of Land Values in Chicago.” It was also elaborated upon by economist Fred Harrison in his 1983 work, “The Power In The Land.” The cycle can be split into three distinct phases:
- 7-Year Recovery – Following a land price crash, prices slowly recover
- 7-Year Peak – As land prices recover, it is once again seen as a lucrative investment, causing prices to soar
- 4-Year Bust – When land prices become so expensive that people can no longer afford rent or mortgages, the prices inevitably crash, bringing the whole economy down with them
2008 Was About Land
Attentive readers will notice that I mention land, rather than real estate, in my description of the property cycle. This is deliberate. Land, not buildings, is the most relevant aspect of properties. Imagine two identical houses, one in a field in Iowa, and one in New York. The one in New York would be far more valuable, due to the land it sits on.
Land values are the driving factor behind increased rent and housing costs. Many apartment complexes charge increasing rents year after year, despite making next to zero improvements to their buildings or services. Read more about the mechanisms behind these price increases in my Geoism article.
This is a critical distinction to understand when analyzing the 2008 crash, which is also referred to as the “Subprime mortgage crisis.” Because mortgages are associated with houses, people tend to view 2008 as a “housing crisis,” rather than a “land crisis.”
2026 Is The New 2008
The exact start or end of a property cycle is often tough to determine. Due to the unprecedented nature of the 2008 crisis, however, that year marked a clear ending for the last cycle. Given a standard trajectory of the property cycle, we’re due to hit rock bottom again in or near 2026.
The Signs
Here are some of the signs to look out for, when analyzing whether or not we’re in the bust stage of the property cycle:
- Housing rates have been climbing at ludicrous rates for a few years
- Housing/Rent affordability has become a serious concern
- People have begun having trouble selling their properties
- Property values have begun to stagnate, or even drop
- Approximately 14 years or more have passed since the last cycle ended
This list is by no means comprehensive, but it should be enough to clearly demonstrate that we are in the bust stage of a property cycle in 2024, at least in the US.
It Doesn’t Have To Be This Way
I want to end this article with a message of hope. We don’t have to keep repeating these cycles. We could re-imagine how we view land, and adjust our economic systems accordingly. For practical suggestions on how to do this, check out my Geoism article.
Or, we could bail out the institutions that perpetuate the property cycle, while leaving the average citizen high and dry, then rinse and repeat in the next cycle. I really hope that we’ll learn from our mistakes this time around. For all of our sakes.