Emile Salame has amassed a significant experience of the UK property market. As the founder of Cornerstone Asset Advisors Ltd, he heads a well-regarded real estate consultancy company based in London, helping clients identify and manage prime real estate investments across the capital.
This article will look at the property cycle and how learning to recognise certain patterns helps investors to make decisions with confidence.
The UK property market does not move randomly; it generally follows a well-established pattern. Gaining a grasp of the 18-year property cycle provides a competitive edge for market players, whether they are buying, selling or investing in property for the first time.
Population growth and economic factors such as high employment levels and consumer spending cause property prices to rise. Conversely, economic downturns trigger inevitable real estate market corrections.
While some investors rely on instinct, getting to grips with the concept of property cycles can help investors sidestep common pitfalls, positioning them to seize opportunities others may overlook. The 18-year property cycle is a pattern that anticipates the rise and fall of real estate prices over time. It consists of three key phases: boom, crash and recovery.
- The boom phase is a period of rapid growth when prices soar as construction, speculation and lending increase. Investor activity peaks, triggering risks as the market overheats.
- The crash phase happens when the bubble bursts, with overinflated prices triggering a sharp correction. In response, lenders tighten credit and investment grinds to a halt, with the market slowing and resetting the stage.
- The recovery stage begins after a market low, with property prices starting to stabilise and gradually climb as confidence returns to the real estate market. Investors cautiously reinter the market, laying the foundations for the next period of sustained growth.
Driven by the push and pull of supply and demand, property markets have unique factors that set them apart. Constant housing demand means that real estate availability is often strained during economic fluctuations. Finite land supply pushes house prices higher over time. Investor psychology is another key aspect, with optimism fuelling property investments and pushing prices up during economic booms. When prices outpace people’s wages the bubble bursts, resulting in a market correction.
The 18-year property cycle is a well-established pattern that involves phases of boom, bust and recovery. In terms of where we are now, current analysis suggests that the next real estate market correction could occur in 2026 or 2027.
Fred Harrison is credited with identifying the 18-year property cycle, outlining the theory in his books The Power of Land, Boom Bust: House Prices, Banking and the Depression of 2010, and We Are Rent. He suggests that evidence of an 18-year UK property cycle dates back as far as 300 years, with a similar cycle occurring in other countries. Fred Harrison is credited with accurately predicting both the 1990 and 2008 UK property market crashes.
In any market, perfectly timing investments is an impossible task. While experts may claim specific dates for the next boom and bust cycle, even those with impressive credentials and track records are prone to miss key dates. Looking back over the last few decades, there is evidence to suggest that the 18-year property cycle theory has some validity. Take for example the 1950s property price upswing followed by a dip in the late 1960s. In the 1970s, property prices rose once more, before crashing in 1990.
While timing the market is an impossible expectation, there are key principles investors can follow; for example, looking at historic and recent property booms and crashes for clues. Recognising the real estate market’s cyclical nature helps people invest in property with more confidence and certainty, safe in the knowledge that prices will fall and rise again and losses are a normal part of investing, as are gains.
