Does UK High Inflation Mean The End of The 18 Year Property Cycle?
Ever heard of the 18 year property cycle? This somewhat obscure concept has been around for quite some time, and it’s rooted in centuries of historical data.
The man behind the theory, Fred Harrison, has had an uncanny knack for predicting major property downturns.
Whilst a controversial figure, he foresaw the crashes of 2008 and 1990, and he predicts another crash for 2026.
Now, with inflation running amok and mortgage rates taking off, it begs the question: will the 18-year cycle hold true?
Who is Fred Harrison?
Fred Harrison is a British author, economist, economic commentator, and corporate policy advisor. He is notable for his stances on land reform and belief that an overreliance on land, property, and mortgages weakens economic structures and makes companies vulnerable to economic collapse.
Harrison has written over 20 books on economics and land reform. He is also a regular contributor to newspapers and magazines, and he has appeared on numerous radio and television programs. He is the Research Director of the Land Research Trust, a London-based think tank that promotes land reform.
Harrisons critics argue that his economic theories are simplistic and that he ignores the role of other factors, such as government policy, in economic growth. However, his supporters argue that he is a visionary thinker who has identified the root cause of many of the world’s economic problems.
In 2005, Harrison predicted that the global financial crisis of 2008 would be triggered by a collapse in the housing market. He argued that the housing market was overheated and that the high prices were unsustainable.
His prediction was widely criticised at the time, but it turned out to be correct.
Understanding the 18-Year Cycle
Imagine a roller coaster. First, there’s the slow climb. This is the four-year period after a crash, where the property market is warming up. Then, for the next six or seven years, the market modestly climbs in what’s termed the ‘recovery phase’.
Just as you feel the thrill is over, there’s a short drop, which signifies the mid-cycle dip. The final and most exhilarating part? A six to seven-year boom phase where property prices skyrocket. Sounds exciting, right?
But here’s the twist.
Up until last year, the cycle seemed to be in perfect motion. From April 2020 to November 2022, average house prices shot up by 27%, from £230,000 to £292,000.
If the 18-year cycle was on track, we should be in the midst of the thrilling boom phase. So why are average house prices now taking a nosedive?
Mortgage Rates, Inflation, and the Current Cycle
The Bank of England’s swift interest rate hikes have introduced us to the reality of higher mortgage rates. The property market is feeling the pinch. Nationwide’s latest stats show house prices are down by 3.8% annually, while Halifax reports a 2.4% dip.
But Harrison thinks there’s more to the story.
While many see doom and gloom, he views the current state as a mere hiccup. In his eyes, Covid caused a premature surge in prices.
Now, the market needs a moment to catch its breath.
Harrison is confident that prices will once again soar, supported by factors like the government’s haphazard approach to housing and the potential exit of landlords from the market.
If you’re wondering how landlord exits could boost prices, think about this: fewer rental options could push more people to buy, driving up demand and prices. Makes sense, doesn’t it?
Factors Reinforcing the Cycle
Harrison’s crystal ball shows a few more elements in play. The upcoming general election, for instance, is expected to be a price propellant. Politicians won’t risk alienating potential homeowners with any unfavourable moves.
Moreover, as inflation nibbles away at other asset returns, properties, especially rent-yielding ones, will shine brighter in investors’ portfolios. The quest for stable returns could, in turn, bolster the 18-year cycle.
Crash in 2026: A Sure Bet?
Despite the current market turbulence, Harrison is not budging from his 2026 prediction. With significant elections on the horizon, he believes governments will pull out all the stops to woo their voter base, inadvertently driving up property values.
But he warns of a sharp downturn post-2026, triggered by a lack of robust response mechanisms like those seen in 2008. Remember the austerity measures? Those might seem like a walk in the park compared to what’s ahead.
Harrison envisions a recession dwarfing the 2008 crisis. Factors like climate-induced migrations, geopolitical tensions, and even potential political shifts in the USA could further muddy the waters. With so many variables in play, predicting the exact fallout is a challenge. But one thing’s for sure – turbulent times lie ahead.
Can Anything Break the Cycle?
If you’re banking on pricier mortgages to break the cycle, think again. In Harrison’s view, nothing short of a global war can alter the trajectory. While political interventions can cause minor deviations (remember the incentives for first-time buyers?), the overarching trend remains unyielding.
So, what’s the takeaway for all of us?
While the future remains uncertain, one thing is clear: property markets are influenced by a myriad of factors, both predictable and unforeseen. Whether or not the 18-year cycle will continue as predicted remains to be seen.
But it’s always wise to keep an ear to the ground and an eye on the horizon. After all, forewarned is forearmed. And the experts at Questa are always happy to discuss your specific investment challenges.
The information provided in this article isn’t personal advice. It is a commentary on media discussion about an issue we feel is valuable and interesting. We’ve based our details on reliable sources, but we can’t guarantee their accuracy. Questa Chartered isn’t required to update this information.