The 18 Year Property Cycle

A strong caveat before you read this post, I’m not an expert and you should take any advice here with a pinch of salt (probably you should ignore my advice altogether). Do Your Own Research.

After a recommendation from a friend I’ve been listening to the Property Podcast recently, picking out odd episodes that sound interesting. It’s quite good, the two Robs are very enthusiastic, and it is motivational. If you’re interested in property investment I would recommend having a listen. Personally I have an Android phone and I use the Google Podcasts app to get free podcasts, so I’ve been listening to that and other podcasts, including Afford Anything (the Suze Orman interview recently was quite entertaining), Revisionist History with Malcolm Gladwell, You Are Not So Smart, and more.

Anyway, whilst browsing through the podcasts available on the Property Podcast I noticed a topic that comes up again and again – The 18 Year Property Cycle. The two Robs seem fairly taken with the idea. Personally I’m a little sceptical, the economy/house prices/share prices all seem quite unpredictable to me. But I must admit the idea does seem quite plausible.

So what is The 18 Year Property Cycle?

Apparently the 18 Year Property Cycle was first identified by an economist called Homer Hoyt, and then it became more famous by Fred Harrison in his book ‘Boom Bust’. Fred Harrison observes that there is a house price crash roughly every 18 years (give or take a year). There was one in 1953-4, one in 1971-2, and one in 1989-90. The first edition of his book was released in 2005 and predicted a house price crash in 2007-8. We all know what happened next:


It’s not always obvious, if you look at a graph of house prices over the decades, where these crashes occur. The 1971-2 crash for example didn’t actually see falling nominal house prices, but you have to remember that inflation reached double figures in those years (I believe mainly because of OPEC oil price increases) and therefore real house prices did decrease significantly.

When the crash hits, so the theory goes, house prices will usually take 4 to 5 years to recover, to reach what they were before. Then there follows a period of steady house price growth for another 6 to 7 years, followed by a small(ish) correction for a year or two. And then suddenly house prices start booming, rapidly increasing for 5 or 6 years as you enter bubble territory. And then the next crash hits and we start all over again.

Here’s what it looks like in a graph:


So where are we now?

Well, the last significant crash was in 2007-8, in the UK that is. Across the UK there is a lot of regional variation for house price increases/decreases since that time, because you have some areas that have continued to see house price growth (eg London, South East) whereas other areas have seen house price falls that still haven’t recovered (eg Blackpool, Middlesbrough). It looks like London rode out the house price crash of 2007-8 due to foreign investment as London was seen as a safe haven from the Great Recession, and the opposite is happening now. But in any case, house prices on average across the UK fell significantly after 2007, and it wasn’t until about 2012 that they really started to recover.

(Incidentally, April 2012 was when I bought my first house, and I’ve seen quite significant house price growth as that house has gone from about £165k to £245k over 6 years. That’s over 6.5% per year. I would like to think I’m a savvy property investor, but the truth is I probably just got lucky in buying at just the right time.)

So here we are in 2018, and I think it’s safe to say there has been a bit of a correction in terms of house prices this year. London in particular has seen falling house prices, in large part due to declining foreign investment due to the uncertainties of Brexit, but also probably because houses were overvalued to start with. Nevertheless there are other cities that are continuing to see house price growth this year, including Manchester, Liverpool, and Birmingham.

Overall though, across the country, we’re probably in a correctional phase as predicted by The 18 Year Property Cycle. Added to that the fact inflation has increased to over 2.5% the last couple of years, largely because of the weak pound (again largely because of Brexit), and that means house price growth has really slowed recently.

So what is next?

According to The 18 Year Property Cycle this correctional phase should continue for a year or so before house prices start increasing again. And then they will really start to boom. There may even be a house price bubble starting to form in a few years time. It’s difficult to predict at the moment because we don’t know what will happen with Brexit. I would say it’s unlikely we’ll leave the EU without a deal, no sane politician would allow that to happen (although there are plenty of insane ones who would be happy for ‘No Deal’ to happen). It seems likely that uncertainty will continue even if we do get a deal, because at that stage we’ll go into this ‘transition’ phase and then we’ve got another 2-3 years of waiting to see what the final trading arrangement is. (I myself am still hoping we might get a 2nd referendum and decide to stay in the EU – the skies would certainly clear after that, but things look quite grim at the moment.)

I guess the important thing to note is that events like this happen all the time. In the 1970s it was the OPEC cartel oil price rises. In the early 1990s Britain crashed out of the Exchange Rate Mechanism. 2007-8 was the Credit Crunch of course. We humans are very good at shooting ourselves in the foot and creating problems, though these are just triggers really. House prices are a weird phenomenon in that they can increase way beyond what their value should actually be, indeed a house price bubble can go on for years, but eventually there will be an event that brings them crashing down.

Still, I would say house prices aren’t so crazy high at the moment that they’ll suddenly crash, and probably even a No Deal Brexit won’t have that much of an effect in the next year or two to bring them down. However, according to the theory, house prices will start to increase again soon, and then they may start to boom, way beyond expectations. People will start taking more and more risks, and banks will start lending at higher and higher loan-to-values.

And then, in 2025-6, give or take a year, there will be another crash.

Why does this keep happening?

You would think, given what we know about the history of the housing market in the UK, that people would be a bit more sensible when it comes to buying houses, particularly when they’re in bubble territory. Surely people must realise that house prices are cyclical, and that knowledge alone should help smooth out the cycle? Gordon Brown famously said that his government had brought an end to boom and bust, which seems quite naive now, but at the time a lot of us (including me I think) went along with that narrative.

I’m not an economist, or a sociologist, or any other ‘ist’ that could do a proper study into this phenomenon. And as I understand it Fred Harrison doesn’t really give us any clues as to why the cycle keeps happening, he is just making an observation. However, here are my suggestions on why we keep seeing house price booms and crashes.

Firstly, people have short memories. You probably would need to have lived through 2 cycles of the 18 Year Property Cycle to see firsthand that this keeps happening and to understand that it will happen again. Books like Fred Harrison’s get drowned out really in the scale of things. Most people are probably aware that there have been house price booms and crashes in the past, but they don’t think that they will be the ones affected by it.

(On a similar note I heard recently that despite all the warnings about smoking dramatically increasing the changes of lung cancer, smokers continue to smoke because they think cancer will happen to someone else, not them. Weird really, something to do with the optimistic bias apparently.)

Having lived myself through the early 2000s it did seem like the problems of economics had been solved, that the government had figured out how to make everything keep ticking over nicely indefinitely. Right up to 2007 it seemed like the good times would keep on rolling, that things would keep getting better, and I could see why someone in early-2007 might go out a buy a property at some very stretched valuation because, hey, the price will only go up right? A few years time and you’d be rolling in equity. Or not.

Secondly, we humans are herd-type creatures. We’re social animals and easily swayed by what is going on around us. We all understand and have felt what FOMO (fear of missing out) is. And so you see it time and time again, markets go into bubbles and then crash not long after. I remember a few years back reading about the middle class Chinese families who’d put their life savings into the stock market only to see their stocks wiped out. This is the Shanghai Composite Index:


Or what about BitCoin earlier this year:


In both of these scenarios there were ordinary people, that is, people who wouldn’t normally be interested in trading, all piling in to try and get a piece of the pie. Because it’s in the news, because a friend of a friend bought in and made a killing, and now we want some of that too. And inevitably there will be people who buy at the peak, just before the crash, and lose all their savings.

It seems obvious with hindsight that buying at the peak of a bubble is foolish, but people continue to do it, and the housing market is no different.

So what can we do about it?

If we assume that The 18 Year Property Cycle is correct then now is probably a good time to be buying a house I would say. I’m not an expert and you should always do your own research – I don’t want to be responsible should things go south (and they might with Brexit round the corner let’s be honest). But there is a lot of uncertainty in the air and a very sluggish property market, and therefore there should be some bargains to be had. In theory we should see house price increases start ramping up next year and beyond.

The question then is what to do before the next crash? It would probably be a bad idea to buy any time from 2024 onward. You could wait til the last possible moment, say in early 2025 and then sell any property investments you have, hold onto the cash and then buy a couple of years later when house prices have bottomed out. But that’s risky – trying to time the market is a dangerous game to play – if you tried that in London in 2007 you might not have been able to buy back into the market a couple of years later.

The two Robs of the Property Podcast suggest that getting a short remortgage (say a 2 year fix) before the crash could be a good idea – once the crash hits the government will likely reduce interest rates and there should be some good mortgage offers available. That seems like reasonable advice to me.

At the end of the day the old advice is the best I think, buy a house as a long term investment, of 10 or 20 years, and in that time you’ll ride out any shocks to the market. It’s boring but there you go.

What do you think, does the 18 Year Property Cycle sound plausible? If so, do you have any plans to mitigate the effects of it?

Finally before I sign off, I must stress once more I’m not an expert and you should do your own research before taking any action on the information (if you can call it that) above.

Thanks for reading,


6 thoughts on “The 18 Year Property Cycle

  1. I found this post really interesting. Never really thought before about housing in the UK being as cyclical as stocks are known to be. Especially surprising given our obsession with owning property compared to the rest of Europe.

    If there is another house price crash in 2024-25, you can point to this post as proof that you predicted it and then make a lucrative career out of being a housing analyst!


  2. This is a great post Wephway thanks, summarises succinctly a lot of my own thoughts.
    I think fuel to the flame of a further house price increase over the next few years is the continued drop in mortgage rates and limited supply. Leeds Building Society is offering a (discounted) 0.99% rate, which is utterly crazy. We’re also not building houses at anywhere near the rate of population increase, causing competition in the market. Our local experience was that there were more buyers than properties, so the good stuff got snapped up quick. All looks good in the portfolio and provides reasons for optimism!


  3. An excellent post and although it seems intuitive that house prices are probably somewhat cyclical, just like stocks boom and crash, I had no idea it was this clockwork like!

    Off to buy shed loads of property now and will be fully blaming you if it goes pear shaped 😉


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