The notion of property cycles rests on two separate, yet related, propositions.
The first is what might be called the 'gravity proposition': what goes up must come down. A boom will, with terrible inevitability, end in a bust. If the boom is big enough the bust will be suitably spectacular.
The gravity proposition is not particularly contentious and is by no means unique to property. Think of a product, commodity or even fashion and the gravity proposition is well known: put another way, bubbles burst.
But the property industry seems to have convinced itself of another proposition, one that sci-fi buffs might call the 'anti-gravity proposition': what comes down will eventually go back up.
Economists will be familiar with the thinking for it is something called Say's Law that is being invoked. This states that the price mechanism ensures that demand and supply will try to even out. Claims that we are at the "bottom of the cycle" are the vox-pop of this idea. We are at the bottom, ergo, the only way is up.
But there are two problems with Say's Law. The first is that economics discarded it in the 1930s, when the Great Depression doggedly refused to end. Sometimes resources (both human and physical) remain unemployed.
The other problem is peculiar to property in the UK. Even if Say's Law worked, it requires one key rule: prices must be able to adjust. In commercial property this simply isn't happening. For a quarter of a century the market has been plagued by the institutionalised inflation that is the upward only rent review.
So even if the economy was in rude non-inflationary health, the property market might still find itself in a bind. Without rental growth, and with historic inflation still trapped in thousands of leases, what are tenants supposed to do? The days when they could happily sublet or assign at higher than rent passing are long gone, perhaps never to return. And without demand, no market can claim to be healthy.
And so the cautious optimism of January has burnt off in the heat of summer: agents have had to downgraded forecasts; the occassional hot spot has not prevented rent cutting to kick start dormant marketing campaigns; sites once viewed as major office development opportunities have become homes, student hostels or hotels.
In the early 1990s the concept of a general realignment of rents - downward reviews - was discretely mooted. Influential hands strangled the idea at birth. One wonders how much healthier demand would be today but for this. The market would surely be more fluid, with the mega-requirements complemented by a healthy batch from the middle ranks.
But would this be enough? Just one of today's mega-requirements would have wiped out the entire current supply of the 1970 City market. A smallish batch was enough to foster Broadgate and Canary Wharf in the mid-1980s. But it is difficult to see where comparable pressure will come from today.
A ball will bounced in defiance of gravity. But the bounces get smaller and smaller. Eventually gravity asserts itself. Unless, that is, somebody gives the ball a kick. In the absence of Say's Law, where is the kick coming from? Property's anti-gravity proposition is as impossible as that of science fiction.
549 words
©Ian Cundell 1996