Building Housing Market Cycles
RQ1 What are Economic Business Cycles and their connection to building cycles?
Theory
The economic business cycle views how an economy fluctuates over a period and how
that fluctuation expands or contracts through the phases of a cycle (Barras, 2009). Four phases
within a business cycle are involved in the real estate industry, and it accounts for construction,
waste, the buildout and design and operation (Kotaji, 2003). The utilization of a building
encompasses the building cycle and the various aspects of making a building resourceful (Geng
et al., 2017). The building cycle still needs to be worth investing in and entrepreneurs will gauge
the industry utilizing consumption theory to ensure they are making informed investments
(Nisticò, 2020). Schumpeterian theory suggests that progress does not happen in a bubble, but it
is achieved through continuous evolution and new infrastructure, and this creates an investment
boom that spurs the economy (Barras, 2009).
Information technologies expand to every stage of the economic business cycle and this
information is analyzed to comprehend the data (Sheina et al., 2021). The connection between
the economic business cycle and business cycles considers migration patterns, the rate of
interest, building costs, and the building market (Singer, 1942). When the market cycle has an
internal cause and cyclic behavior, the error is that the market is ousted due to uninformed agents
(Wheaton, 1999). If free market societies continue to spur economic growth, there will always be
cyclical fluctuations behind housing and building. Real estate will always be an industry that is
prone to volatility because of the slow demand for capital and how capital is disbursed
(Wheaton, 1999).
Building Housing Market Cycles
Research
To assess the economic business cycle and how it connects to building cycles there is a
development within a framework of activities such as surveying the lifecycle costs and assessing
real estate development (Popovychenko et al., 2023). To justify the decisions on the building
cycles and what the future value will be for the management of the assets and provide insight for
the entire life cycle there needs to be exceptional results for the design and restoration
(Popovychenko et al., 2023). To support the investment decisions will require an analysis of the
total cycle and cost which will support in the decision-making process (Ganter & Lützkendorf,
2019).
Building cycles differ depending on location so the due diligence incorporated into the
economic valuation allows investors to assess the risk for sustainability (Ganter & Lützkendorf,
2019). In the building cycle, there comes a time when there is too much inventory and builders
must slow due to the unique shock while this is happening governments step in to provide
incentives and one such incentive was the tax Reform Act of 1980 (Auerbach & Hines 1988;
DiPasquale & Wheaton, 1992; Wheaton, 1999).
Analysis
Decisions about investments today have an environmental impact that will last a lifetime
and the factors that go into understanding the economic business cycle identify measures and
address the environmental performance of buildings and construction. Weakness in the
construction industry could be connected to serious depression. Within the building cycle when
vacancies fall construction is triggered and the real estate market improves the forecast of the
clearance. The phases an economic business cycle endures encompass many variables and
entrepreneurs take those nuances into account to make knowledgeable investments.
Building Housing Market Cycles
RQ2 What are demand shock’s impact on building/housing cycles and why are they
referred to as a one-cycle pattern?
Theory
A demand shock has the same trigger as a financial crisis that happened in 2008 creating
an abrupt drop in demand. Construction activity will rise and fall until stability is reached so the
trend for real estate to correct itself is prevalent and this pattern is a one-cycle pattern
(Pirounakis, 2013). One cycle has a smooth relationship within the building cycle and the growth
is toward creating an equilibrium (Basu & Bundick, 2017). The impact that demand shock has on
the housing cycle creates marginal utilities giving rise to liquidity which creates the influx
between housing prices and rent (Liu et al., 2019).
Research
Demand shocks can't present a positive or negative impact on the housing market, and it
can increase housing consumption while reducing the current utility (Fan, 2022). A movement in
rents and prices for homes is in direct relation to the capital that is in the market and how
individuals respond to the shock (Wheaton, 1999). When prices are slow to react uncertainty
shocks can stimulate growth in a market due to opposing trends during the impact (Basu &
Bundick, 2017). Consequently, demand shocks create a favorable short-term limited impact on
prices in the market (Fan, 2022). When a shock occurs if the market is fairly new, they will lack
the experience in how to come back from the shock so the volatility and the magnitude of the
shock may lag over timeD(Fan, 2022). The long-term effects of shock reveal a negative impact on
the market (Fan, 2022).
Building Housing Market Cycles
Analysis
What are demand shock’s impact on building/housing cycles and why are they
referred to as a one-cycle pattern?
To understand the demand shock impact, we will visit the crash of 2001 and the
economic meltdown and how it changed rent cycles, so rentals rose after two years while office
space declined. When demand shock occurs, firms need to adjust their pricing to respond to the
market changes, and over time the prices may catch up. With long lead times when building out
infrastructure investors trying to ensure they utilize the best resources available, so they tend to
undershoot or overshoot depending on what the market needs. Demand shock creates a sense of
justification for consumers so that the shift in home prices will not be a huge factor.
RQ3 What were the Building/Housing Cycles in Europe about from about 1714 until the
early 1900s and analyze their impact on the new capitalistic/free market system that was
beginning to flourish in Europe during those years.
Theory
Economic theory is a result of fluctuations that are not regular because the economy is
not consistent, and it has multiple influences from social to political activity (Barras, 2009).
Economic growth is the trajectory and has a relationship with cycle behavior in as to be a change
that is created over time (Rostow, 1990). Rostow (1990) posits that there is a link between
cyclical fluctuations and major innovations in that the growth and how satisfactory theory
outlines the aspects of economic growth. Since there is steadiness and unsteadiness with the
growth in Europe there would be no progression in the area so the push and pull, that Europe
experienced helped to bolster the economy (Barras, 2009).
Building Housing Market Cycles
Research
In 1714 in the early 1900s, London was overbuilt due to the boom in trade and business,
and more properties needed purchases than there were people to buy them (Porter (1994).
London preceded to go through ups and downs in the real estate market due to the influx of
capital that could be used to develop and the process of underbuilding when there was no money
to build (Dyos, 1968). There was still growth in London due to the alternating periods of
innovation and a multitude of groups not swarming to live in London (Schumpeter, 1943). The
building cycles in London saw fluctuations but the growth during the cycles far outweighed the
drought during the low periods (Barras, 2009).
Analysis
London became the largest city in Europe due to its extreme growth in the 18th century.
Britain underwent the first industrial revolution because it embraced manufacturing and
international expansion. During that time in Britain, rural areas were swallowed up and the city
built new infrastructure to house the working class. London grew so large that it was four times
the size of Berlin and twice that of Paris. Building activity increased and had a major impact on
the new industrialization of London. With Europe being at the pinnacle of growth due to the
uncertainty of the free-market system it only helped to strengthen Europe.
RQ4 Where in the economic business cycle is the USA today and choose a geographic area
and discuss its housing/building cycle (provide perspective and predict the next 12
months)?
When addressing the economic business cycle in the USA today it is best to briefly speak
on what events took place during the 2008 financial crisis to give insight to what is taking place
in the housing market. The collapse of the market in 2008 was a shock had major concerns for
Building Housing Market Cycles
the price fluctuations that occurred during that time (Davis & Heathcote, 2007). In 2006
borrowers were taking on adjustable-rate mortgages and record numbers in the hopes of getting
into the home and being able to pay the mortgage with the adjustable-rate mortgage ballooned.
Banks were issuing funding to those who normally would not be able to pay the money back. So,
when we Fast forward to 2019, we see the same ideas and methodologies that consumers used
back in 2006 to cause the 2008 economic downfall.
There is a lack of education on adjustable-rate mortgages and there are several consumers
who have taken these same mortgages back in 2019, and they are now becoming due. So, what
will happen is these mortgages will balloon and people will not be able to afford to stay in their
homes. What's happening in 2024 into 2025 won't be like the financial crisis that happened in
2008 but they have some of the same dealings. The cost of homes continues to rise, and cities are
working to understand how to combat these housing prices that have not stabilized (Emerald
Expert Briefings, 2022).D The year 2008 is a great predictor of what the country will see on the
horizon to a lesser degree and the entire real estate industry needs to understand what inventory
is available to be able to plan better and what the housing prices will be in the various areas
(Gude, 2024).
Homeownership is still looking bleak for a lot of people who have never owned a home
because the supply is not meeting the demand and with interest rates as high as they are people
have just resulted in renting (Egidi et al., 2020). Atlanta maintains a lot of corporate investors
taking over the economy to take advantage of the opportunity of residual income by hosting
many renters. In the next 12 months down in the Atlanta area there will be areas where
construction will continue while some cities will see a cooling-off period (Duplessis, 2024).
Building Housing Market Cycles
References
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Incorporated.DProQuest Ebook Central,
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Basu, S., & Bundick, B. (2017). Uncertainty Shocks in a Model of Effective Demand.
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Building Housing Market Cycles
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Building Housing Market Cycles
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