A few years ago a senior London planner posed an interesting problem to me, one that is becoming more relevant by the day.
Either property cycles exist and the market has some regularity, or they do not and property markets are totally unpredictable.
Notions of cycles are certainly very attractive. They provide a straightforward explanation of the roller coaster ride that the industry seems to suffer from. So attractive are they that the RICS commissioned a study into them and they are becoming the backbone of the burgeoning forecasting industry. How many clients have you had asking 'Is this based on a model?'
The nagging voices of disquiet saying 'hang on it's not that simple' go largely unheard. Instead influential voices are selling the dream of a predictable market. But the planner had hit the nail on the head. He understood that any particular development phase was the outcome of many long and complex processes - evolving economies, technical change, political development - interacting with each other and countless one-off events. But he was only partly right in saying that they are unpredictable.
The problem with cycles is that they are taking on the dimensions of the Holy Grail. A whole industry seems to be caught up in a search for some magic formula that will smooth out the peaks and troughs.
But such an approach offers no role for innovators or entrepreneurs, much less the many and varied occupiers. They cannot build in the impact of the kind of changes that overwhelmed the City institutions through the 70s and 80s and, because they are built on a very conventional way of understanding property, they have very limited scope for addressing the impact that changes elsewhere can have.
What do regression models have to say on the impact of aggressive marketing by Frankfurt or Paris? What do they tell you about the significance of, say, a Cabinet reshuffle? Given the variables, the attempts at forecasting 5 years or more ahead seem increasingly futile. But that doesn't mean we can't predict. A small example.
My old college tutor once told me how he made some money. He had been asked to assess the future of a towns' retail. He said, in a nutshell, 'Forget all the floorspace statistics, forget the expenditure survey. Keep your eyes on one company. That is the future'. The company was Carrefours and a few months later they opened Britain's first hyper-market at Caerphilly. Whatever happened to out of town retail?
Yet huge resources are committed to applying inappropriate techniques to data that is barely twenty years old, on which some basic definitions have not been agreed and the accuracy of which, given confidentiality clauses and the like, cannot be measured.
So here's a suggestion. By all means keep your formulae and continue to develop them. By all means keep gathering the databases. Accurate information is always useful.
But when you want to know what's going to happen next, look at the people. Property is, after all, a people business. The people change over time, their motives change and their methods of operation change. It is their acts of vision and of folly that will shape the industry over coming years, not some immutable, statistically derived law of the property cycle.
There is no Holy Grail.
© 1994 Ian Cundell
Originally published in modified form in Estates Times