Performing property cycles

ABSTRACT

Economists characterize fluctuations in property markets as ‘cyclical’ in that characteristics repeat and recur instead of being temporally isolated or random. I argue that cycle metaphors naturalize change and distract us from the social and institutional relations underpinning transformation in local property markets. I emphasize the performative nature of cycles by focusing on the networks of actors – brokers, appraisers, investors, and planners – that move capital through the built environment, articulating arguments for its free passage, identifying inflexion points, and temporarily stabilizing the meanings associated with individual buildings, submarkets, and periods. Drawing from a case study of an office development cycle in downtown Chicago (1998–2009), I argue that cycles can be treated not only as metaphors that describe economic processes, but also as socially effective constructions in their own right. Specifically, I consider three ways in which actors perform cycles, including (1) professionals’ use of market devices that contain within them assumptions regarding the proper timing of (dis)investment; (2) the existence of incentives for herding among professionals that draw them to and away from assets at roughly the same times; and (3) the importance of cycle thinking in instilling the confidence necessary to speculate on an unknown future.

KEYWORDS:

• Construction cycles
• performativity
• real estate
• market devices
• property sector

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Rachel Weber is a Professor in the Urban Planning and Policy Department and a Faculty Fellow at the Great Cities Institute at the University of Illinois at Chicago where she teaches courses and conducts research in the fields of economic development, urban policy, and public finance. She is the author of Swords into Dow Shares: Governing the Decline of the Military Industrial Complex and co-editor of the Oxford Handbook of Urban Planning, a compilation of 40 essays by leading urban scholars. Her latest book, From Boom to Bubble: How Finance Built the New Chicago, was recently published by the University of Chicago Press. In addition to her academic responsibilities, she has served as an advisor to municipal planning agencies, political candidates, and community organizations on issues related to municipal incentives, property taxes, and neighborhood revitalization. She was appointed by Chicago Mayor Rahm Emanuel to the Tax Increment Financing Reform Task Force in 2011 to provide recommendations to his new administration for reforming this financing tool.

Notes

1. The full analysis can be found at Weber (2015). I reference the book where appropriate.

2. Mitchell (1913), for example, argues that as soon as an economy ‘develops into full prosperity’, that prosperity gradually breeds a crisis, the crisis merges into depression, and ‘depression becomes deeper for a while, but ultimately engenders a fresh revival of activity, which is the beginning of another cycle’ (p. 449).

3. Heterodox economists also believe in cycles, although they use different nomenclature. Keynesians use terms like ‘booms’, ‘bubbles’, and ‘busts’ over that of cycles. Because they acknowledge that building follows not just the occupant market but also capital markets and policy interventions, they are less inclined to find smoothness in the data (the incremental beginnings and gently sloping conclusions of sine waves) and more interested in sudden ruptures and jagged transitions. Whereas neoclassical economists argue that state intervention distorts cycles, Keynesians are more likely to point out how it is financial speculation that amplifies ups and downs and prevents markets from adjusting.

4. In most accounts, the need to replace the existing building stock plays only a minor role although some economists, like Wheaton (1999) and Ball (2003), acknowledge the importance of depreciation.

5. The dissemination of this cycle was helped along when the firm started by the three economists was purchased by a private data company, which then teamed up with bond rating agency Standard & Poor’s to distribute the data and graphics.

6. CoStar, a private, subscription-based provider of commercial real estate information maintains a team of almost 1000 researchers who gather primary information through direct counts and site inspections, as well as through document reviews, news monitoring, and secondary data analysis. See http://www.costargroup.com/

7. Marshall (1885) wrote ‘The graphic method of statistics has the advantage of enabling the eye to take in at once a long series of facts … ease and rapidity are essential to comparing many sets of facts together.’ Quoted in De Goede 2005, p. 93.

8. De Goede (2005, p. 93) quotes British economist William Stanley Jevons: who said ‘all commercial fluctuations should be investigated according to scientific methods of other complicated sciences, especially meteorology and terrestrial magnetism. Every kind of periodic fluctuation, whether daily, weekly monthly, quarterly or yearly, must be detected and exhibited’ (1862).

9. Jevons’ famous ‘sun spot’ theory of cycles proposed that because the sun influenced weather, it also affected crop yields, causing agricultural outputs, prices and income to fluctuate in regular ways.

10. U.S. Bureau of Labor Statistics, ‘Industries at a Glance: NAICS 531, January – December 2008’ 2009. http://data.bls.gov/timeseries/CES5553000001?data_tool=XGtable.

11. Author’s calculation based on U.S. Bureau of Labor Statistics, Metro Area Quarterly Census of Employment and Wages data, 2000–2005, http://www.bls.gov/cew/data.htm

12. Author’s calculation based on Illinois Department of Employment Security, Where Workers Work data for, 20102000, http://www.ides.illinois.gov/LMI/Pages/Where_Workers_Work.aspx