The man who predicted the property crash

Ross Clark

Economist Fred Harrison proved to be the canary in the housing mine, reveals Ross Clark – but few were listening

The causes of modern property booms find a strong echo in the booms and busts of two centuries ago: prices would rise, inviting speculation. Always the boom would reach the point at which speculators could not earn enough in rent to pay the interest on their loans. Still, they would go on buying for a while, until the market ran out of buyers and the speculators went bust. But why always on an 18-year cycle? This, claims Harrison, was the average duration of the working life of Britons in the 18th century. Maybe it was, but that still doesn’t quite explain why the property market worked on an 18-year cycle then and still less so why it still does now, when the average working life is 40 years or more.

What is for sure is that the property boom which ended in 2007 went on for far longer than virtually anyone other than Harrison imagined that it would last, and that it made fools of a great number of people: the economists who called time too early, the estate agents who were still insisting as late as this spring that all was well in the housing market, and not least Gordon Brown and his famous pledge to put an end to boom and bust.

Just over a year ago, I wondered whether something else had begun to work on an 18-year cycle: politics. The Tories lasted 18 years from 1979; with Gordon Brown seemingly assured of one election victory it seemed that Labour, too, might last 18 years, until 2015. With the next election pencilled in for 2010, which looks likely at this stage to fulfil Harrison’s prediction of the bottom of the housing market, that now feels highly unlikely – even though John Major somehow won an election at the nadir of the last slump in 1992.

Is it worth following Harrison’s advice and buying a property portfolio in two years’ time, and pencilling in your diary – assuming you can find one that goes that far ahead – to sell the lot around the year 2025? I wouldn’t necessarily mortgage my future on the next property boom ending then – but then again I certainly won’t be betting against it.

Boom Bust: house prices, banking and the great depression 2010 by Fred Harrison is published by Shepheard Walwyn

Ross Clark writes regularly on property for the Sunday Telegraph

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Richard

October 2nd, 2008 6:49pm Report this comment

Mr Clark has omitted the early 80s fall in house prices from his calculations in support of Harrison. Also, I don't think that house prices fell particularly in 1966 or 1948. 3 data points don't make an economic cycle!

heatonfan

October 4th, 2008 4:23pm Report this comment

Harrison's book is fairly easy to read. Ross Clark also fails to mention, inexcusably, that Fred Harrison timed the housing crash in the late 80's correctly in his writings in the early 80's. His book uses far more than 3 data points.
Disappointedly, Clark fails to mention the central these of the book at all: land value tax would prevent these booms and busts and stablise the economy.
Highly recommended.

Johannes Kulsdom

November 26th, 2008 6:38pm Report this comment

From the comments, it is clear , that people do not understand that the LAND QUESTION,that is not dealt with,is the primary cause,of the bust that follows .and that is the cause of the banking crisis !Learn about the Land-question, and it might make the solution more clear !

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