Understanding property cycles in a residential market

This paper aims to review property cycle theory and the relevance of the larger body of knowledge about cycles with reference to the housing market. It also aims to highlight the lack of research into property cycles in the residential sector on a suburb or smaller region basis, as well as the potential for increased knowledge about cycles to assist to avoid housing stress.

The paper conducts a literature review of previous cycle research and encourages the use of cycle theory. It discusses the established body of knowledge about business cycles and the office market sector, as well as investigating levels of housing affordability and how detailed knowledge about property cycles can assist to decrease housing affordability in residential areas, which will eventually experience a downturn.

It is argued that an increased level of certainty about cycle behaviour in particular suburbs will give households a higher level of confidence when considering whether and when to enter the market. Property cycle research has the potential to assist low‐income homeowners to better understand the characteristics of cycles and associated risks in each residential.

This is a conceptual paper and has conducted a review of cycle research and housing affordability in certain countries. Some areas or countries may be affected to varying degrees by property cycles and levels of housing affordability.

In extended periods of high volatility it is argued that a better understanding of housing cycles will allow more homeowners to avoid negative equity and the stress associated with repossessions. Property cycles are unavoidable although there is typically relatively little information available in the open market about the timing and amplitude of cycles in individual areas.

This paper is unique as it highlights the potential for property cycles to be used to avoid housing stress in the residential market. Traditionally cycle research is used to increase returns and avoid downturns in the office and/or business sectors.