Martin Gilsenan

Where are we in the property cycle?



During many of the conversations I have had with developers over the past 12 months, the discussion has almost inevitably ended up around the challenging market and the fact that so much depends on where we are in the property cycle.

In recent years, the theory of the 18-year property cycle has gained much currency. The most well-known advocate of this theory is Fred Harrison, whose 2005 book “Boom Bust: House Prices, Banking and the Depression of 2010” accurately predicted the house price crash of 2007/08. Harrison suggested that house prices crash every 18 years, identifying slumps in 1953/54, 1971/72 and 1989/90.

For Harrison, the property cycle over 18 years typically follows the following pattern: the crash occurs, the market then takes four or five years to recover, then has steady growth for six or seven years, then undergoes a small one- or two-year correction and, following that, the property market booms for five to six years before the next crash arrives. 

So much for the theory, but what does this mean for the market in 2019? Where exactly are we in the cycle? Well, like me, many reading this will remember being in the eye of the storm during the global financial crisis (GFC) of 2007/08. Although the GFC can be said to have started in August 2007, when the wholesale money market froze overnight, it wasn’t until 2008 that this began to impact house prices. The collapse of Lehman Brothers in autumn of that year and the full-blown crisis that followed resulted in the average UK property’s value plunging by 20%, while transaction levels slumped from an average of 1.65 million a year in the 10 years up to 2007 to just 730,000 in the 12 months to June 2009. It took six years for prices to return to pre-crash levels and growth has continued up until the first quarter of 2019, when house prices in England fell for the first time in seven years. The biggest drag was in London with a 3.8% fall, albeit the capital has followed a different path to the rest of the UK since the crisis. London was the first to recover, however, with the market bottoming out in 2010. However, it has been in decline for a few years now.

What does the above tell us? To me, the pattern of the 18-year cycle seems to apply more to the UK-wide property market than it does to central London. Since the crash of 2007/08 and given 2019’s first quarter fall, the UK market appears to be in the first stages of the one- to two-year correction following seven years of growth. This correction would just be a blip before an upcoming boom (according to the theory).

London saw a steep rise in property prices between 2010 and 2015, but is now in the fifth year of a correction. One can blame George Osborne’s Stamp Duty changes, the 3% tax on investment properties or indeed Brexit, but ultimately the market has been finding its level. Whether we like it or not, the biggest threat to London’s sustainability as the number one city on the planet is if people can’t afford to live here. Indeed, given the gravity of the economic crisis of 2007/08, the bounce in London was unsustainable and the fall in prices simply reflects that.

Ultimately, it’s dangerous to implement a rigid application of any theory to the property market. The market in each region is different as is each micro-location within it. Each cycle has its own external influences, both political and economic, some of which are impossible to predict and, right now, today’s property market certainly seems to reflect this.

Rant of the day: I’ll have mine to go

Picture the scene, a couple of weeks ago, I am on the tube (Victoria line, to be precise) on my way to an afternoon meeting in the West End. At Warren Street, a bloke gets on, sits next to me and begins eating his takeaway Big Mac. He’s wearing an ill-fitting suit, got massive headphones on (for that Cyberman look), but thankfully no rucksack.

Even so, the smell from the food is filling the carriage — I don’t want to walk into my meeting smelling like a Big Mac. I’m irritated and, by the looks on their faces, so are other passengers. As I’m about to get off the train, I want to say something, but I don’t want to come across as aggressive, so I get up, tap the offender on the shoulder — he removes his huge headphones. “Mate, this is a tube train, not a fast-food outlet,” I said, hoping to get my point across. He looks at me, like I’ve just been speaking Chinese and mumbles something about being hungry not being a crime, the effect of his reply was somewhat undermined by the pickle he was chewing on falling out of his mouth and on to his trousers, accompanied by some iceberg lettuce. It might be only a small thing, but for me, to quote Apocalypse Now: “It smelt like victory.”


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