by Fred Foldvary

The Georgist school of economic thought has analyzed the real-estate-related business cycle, following the theory presented by Henry George in Progress and Poverty. Georgists who have studied the real-estate cycle include Fred Harrison in the U.K., Phil Anderson in Australia, and myself in the USA.

In brief, the Georgist theory of the business cycle begins with the depressed economy, such as occurred in 2008-9. Prices, including the price of land, interest rates, and commodities, have fallen. The low prices of inputs make investment profitable again. At first, expansion fills vacancies, but then growing demand raises land values. Speculators observe rising rents and real estate prices, and jump in to flip properties. Speculation raises land prices to levels that make housing and commercial real estate unaffordable. Real estate prices stop rising, and investments such as construction stop. The decline of investment enterprise results in business failures and loan defaults. The economy falls into a recession (falling output) and then a depression (output substantially below average). The economy suffers from unemployment, bankruptcies, and greater poverty.

My research (e.g. Depression of 2008) combines this Georgist theory with the cycle theory of the Austrian school of economic thought. The Austrian cycle theory is based on the quantity of money and interest rates. In a pure market economy, there is a natural rate of interest based on “time preference,” the tendency of people to prefer to have goods sooner rather than later. Also in a pure free market, the money supply is set by the demand of the people to hold funds, rather than the manipulations of a central bank such as the Federal Reserve system. In today’s economy, when the economy is depressed, the Federal Reserve expands the money supply to provide more credit and to lower the rates of interest below the natural rate. Low interest rates induce investment in long-duration capital goods such as buildings, as well as speculation in land values. The Fed then raises interest rates back up, as it did prior to 2008, which stops the real-estate boom, followed by a recession.

The usual duration of the real estate cycle, and thus also the major business cycle, has been 18 years. This historical sequence was discovered by the real estate economist Homer Hoyt. Indeed, the interval from the recession of 1990 to that of 2008 was 18 years. There was a recession in 2001, but it was minor, and made worse by the 9/11 attack. The timing can be different from 18 years, as it was during the 1970s, when after the recession of 1973, high inflation generated a rise in real estate prices, ending with the recession of 1980.

If the Covid-19 pandemic had not struck the world, the 18-year cycle that began in 2008 would have culminated in a major depression in 2026, following a real-estate peak around 2024. But now the US and global economies have been shocked by the Corona virus, and many who follow the Georgist theory are wondering how the business cycle has been affected.

Phil Anderson and Fred Harrison continue to believe that the 18-year cycle is intact, and that the cycle will still cause a depression around 2026 to 2028. Phil Anderson as well as Fred Harrison point out that the flu pandemic of 1918-19 was followed by the boom of the roaring 1920s. Fred Harrison has stated, “The land-driven boom is on course for the bust when house prices peak in 2026.” “I maintain that the cycle that began in 2010 will continue through to 2028.”

My thought is that Covid-19 has been so disruptive that the current cycle has been stopped. U.S. Gross domestic product (GDP) decreased at an annual rate of 31 percent in the second quarter of 2020. Thousands of small businesses have shut down. An even greater catastrophe was averted by trillions of dollars of governmental compensation and the provision of credit by the Fed. The U.S. money supply has grown 20% from $15 trillion at the end of 2019 to over $18 trillion at the end of July. Much of the loss has been postponed as tenants stop paying rentals and real estate owners stop paying debt service on their mortgages.

In my judgment, the effect is a restructuring of real estate rentals and prices. With more people working at home, tenants are moving out of high-rent places such as San Francisco, where rental rates are falling. With ultra-low interest rates, house sales have surged up. The destruction generated by climate change – wildfires, floods, hurricanes – will cause migration from the areas most affected. As working at home continues, commercial real estate rentals and prices will fall.

Government is so involved with the economy, with restrictions. taxes, subsidies, and mandates, that what happens next will depend on the election of November 2020, and the public reaction to voting disputes. As this is written, the election is a month from now. I expect interest rates to remain low for the next couple of years, but how much that fuels speculation depends also on fiscal policy, both with taxes and with spending. A huge amount of infrastructure spending will push real estate up.

My view is that there is so much repairing to do that we are at the beginning of a new cycle, and so the next 18-year period will be 2020 to 2038. When the great increase in the money supply circulates, the past monetary inflation will be followed by price inflation, which will also drive real estate prices up. I think prices and construction will peak later than 2024, which will also put the next depression way past 2026. So the good news is that the depression of 2026 has been canceled. The bad news is that bad tax and environmental policies are still intact.


Phil Anderson, The Secret Life of Real Estate and Banking, 2008Phil Anderson’s web site  Accessed 10 November 2020.

Fred Foldvary, The Depression of 2008

Fred Foldvary, “The Business Cycle: A Georgist-Austrian Synthesis.” American Journal of Economics and Sociology. Volume56, Issue 4, October 1997

Fred Harrison, “The virus exit nightmare: what we can do about it.” 18 May 2020

The virus exit nightmare: what we can do about it

Fred Harrison, Boom-Bust, 2005.