Academic journal article Journal of Real Estate Literature

Are There Cycles in Real Estate Cycles Research? Evidence from 30 Years of Papers Presented at Real Estate Society Meetings

Academic journal article Journal of Real Estate Literature

Are There Cycles in Real Estate Cycles Research? Evidence from 30 Years of Papers Presented at Real Estate Society Meetings

Article excerpt

Real estate cycles have been a critical underlying reason for the financial successes and failures of real estate investments throughout history. Cycles1 are a major determinant of success or failure due to their pervasive and dynamic impacts on real estate returns, risks, and investment values over time (Pyhrr and Cooper, 1982). While successful investors have recognized these facts, and executed their investment strategies of buying, selling, financing, and managing investment properties in recognition of cycles, academia largely ignored the study of cycles (especially in a microeconomic decision-making context) until the early to middle 1980s (Pyhrr, Roulac, and Born, 1999).

The cyclical nature of the national economy is well documented in the literature as beginning in the 1920s, when the Russian economist Nikolai Kondratieffnoticed that since the start of the industrial revolution, capitalist economies experienced long waves of growth and contraction (Stoken, 1993). These long waves became known as the "KondratieffWave," and were the subject of extensive economic research. Over the next 40 years, the economic literature represented a "long cycle" of research on macroeconomic cycles-business cycles, inflation cycles, currency cycles, population and employment cycles, housing cycles, technology cycles, long cycles, short cycles, etc. However, virtually no emphasis was placed on microeconomic real estate cycle research.

Beginning in the late 1970s and early 1980s, a renaissance of interest developed in the application of cycle theory to real estate in a microeconomic decision-making context. This early cycle of interest is best exemplified in Pyhrr and Cooper (1982) and Born (1984). Over the next 30 years, the subject of real estate cycles garnered interest among academic and industry researchers, resulting in a proliferation of panels and papers at academic society meetings and publications in a wide variety of real estate journals. Ziering and Worzala (1997) reported that approximately 40% of 685 real estate plan sponsors surveyed rated "real estate cycles and their predictability" as the most important research topic to be studied, and 80% rated it among the top three.

A landmark in the development of theoretical and applied research on real estate cycles was the collection of cycle articles that appeared on the subject in a special issue of the Journal of Real Estate Research (Volume 18, Number 1, 1999), and authored by a variety of individuals, including Pyhrr, Born, Webb, Roulac, Mueller, Laposa, Grissom, DeLisle, Tsolacos, Mejia, McGough, Kummerow, Dokko, Edelstein, Lee, Björklund, and Söderberg. The lead article in that issue advanced the idea that there are cycles of interest in real estate cycles (Pyhrr, Roulac, and Born, 1999).

Pyhrr, Born, Manning, and Roulac (2003) pointed out that "despite the extensive global interest in cycles that has developed over the past ten years, there is not a common body of knowledge that is recognized, nor is there a common terminology, theoretical framework and methodology for cycle research by academic and industry researchers." They presented a research framework and classification model for real estate cycles research (RECR) to include the wide variety of macro and micro real estate and related types of cycles, to be based on a theoretical framework, to be "user- friendly" regarding efficiency to classify papers, and to facilitate networking among researchers around the world.

As shown in Exhibit 1, the framework developed by Pyhrr, Born, Manning, and Roulac (2003) had two basic divisions: (1) General Study Characteristics including "General Theory/Perspectives/Approaches/Methodologies" (at the top) and "Property Research Regions/Databases" (at the bottom) and (2) Specific Cycle Types and their descriptors, which are key words that describe the subject matter of a cycle study (in the center). The framework was intended "to be useful to the business decision-maker in real estate investment, development, finance, marketing, and valuation" and therefore included cycles that directly and indirectly "have pervasive impacts on real estate returns, risks, and project/portfolio decisions. …

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