Real estate cycles: from Homer Hoyt to the 18-year cycle

Property has a reputation for moving in waves: years of euphoria, then a correction, sometimes a banking crisis. Some writers go further and claim these waves recur roughly every eighteen years. The idea is appealing and widely quoted, but it deserves a closer look, separating what the data show from what we might like them to show.

Homer Hoyt and a century of Chicago land values

In 1933, in the depths of the Great Depression, the American economist Homer Hoyt (1895-1984) completed a doctoral thesis at the University of Chicago entitled One Hundred Years of Land Values in Chicago. In it he reconstructed the value of the city’s land from the 1830s onwards, a period in which Chicago grew from a frontier outpost into one of the country’s leading cities.

The work is first and foremost a statistical compendium, but what caught later readers’ attention was its account of successive booms and busts. The Encyclopedia of Chicago summarises the peaks Hoyt identified around 1836, 1856, the late 1860s, the early 1890s and 1925, each followed by a trough. Hoyt also described the typical sequence of a boom: population growth, rising rents, a building wave, land speculation, easy credit, then the turn.

Hoyt should, however, be read carefully. The early intervals between peaks run at around 17 to 20 years, but the last exceeds thirty. Hoyt himself did not present these gaps as a fixed period, and he noted that the next boom did not arrive automatically.

The 18-year cycle: a later reading

The notion of a regular cycle of about eighteen years was mainly popularised afterwards. The British journalist and economist Fred Harrison is one of its leading advocates. In The Power in the Land (1983) and later Boom Bust (2005), he draws on Hoyt’s data and on British property history to argue for an eighteen-year cycle rooted in the land market: because the supply of land is fixed, rising demand pushes up land prices, and bank lending amplifies the rise until it breaks. In Boom Bust he expected UK prices to keep rising into 2007 before turning; the book’s subtitle refers to a depression in 2010.

That forecast earned Harrison some prominence after 2008. It is not, however, enough to establish a law. The regularity of the 18-year cycle remains a contested thesis: historical intervals vary considerably, the dating of peaks depends on which series and countries are chosen, and a sample of a few cycles per century lends itself to hindsight. Supporters see a constant; critics, a partial coincidence. To date, no econometric demonstration commands a consensus.

The four phases of the market cycle

More modest but more useful in practice, market phase analysis makes no claim to predict dates. The American academic Glenn Mueller formalised it for commercial property using two variables: occupancy and new construction.

Phase	Occupancy	Construction	Rents
Recovery	Low, below average, but improving	Minimal	Weak, then edging up
Expansion	Above average	Restarts once rents justify it	Rising faster than inflation
Hypersupply	Still high but falling	Completions outpace demand	Growth slowing
Recession	Below average	Slows or stops	Below inflation, sometimes falling

The key insight is the time lag: a building commissioned during expansion is often delivered during hypersupply. That lag, rather than some hidden clock, is what produces turning points. The length of each phase varies by market, segment and credit conditions.

Three historical episodes

Japan, late 1980s. After the 1985 Plaza Accord and a period of very loose monetary policy, shares and land soared. The Nikkei reached its record close of 38,915.87 on 29 December 1989, a level it did not regain until February 2024. Land prices began to fall in 1991. According to the Japanese Cabinet Office’s 2003 economic white paper, they had by then dropped to around 55% of their peak level.

Switzerland, 1990s. In the late 1980s inflation picked up and the Swiss National Bank tightened monetary policy sharply. Mortgage rates rose as the economy weakened, and property prices fell quickly. In October 1991 the Spar- und Leihkasse Thun closed after a run on its deposits. According to the SNB, banks had to write off CHF 42 billion of loans to Swiss customers between 1991 and 1996.

The 2007-2008 crisis. In the United States, an expansion of mortgage lending, including subprime, fuelled a steep rise in prices in the early and mid-2000s. According to S&P, the national Case-Shiller index was down 35.1% in the first quarter of 2012 from its peak in the second quarter of 2006. The housing crisis became a global financial crisis with the collapse of Lehman Brothers on 15 September 2008.

These episodes share common features: abundant credit, prices detached from incomes, then monetary tightening or a funding shock. They are not spaced eighteen years apart, a reminder that cycles are not synchronised across countries.

Key takeaways

Homer Hoyt’s work remains a reference for understanding the mechanics of land booms, but Hoyt did not establish a fixed period. The 18-year cycle, popularised notably by Fred Harrison, is a stimulating and contested thesis, not an economic law. Our view: the four-phase framework, based on occupancy, construction and credit, is more useful to investors than a calendar, because it encourages watching the market rather than waiting for a date. The Japanese, Swiss and American crises suggest that credit and interest rates are the best leading indicators of a turn.