Nobody paid attention during the 1990s when those familiar with the real estate cycle predicted the Depression of 2008 (including myself, in 1997). Almost all economists, financial analysts, journalists, pundits, bloggers, and armchair cynics will also scoff at this prediction of a severe recession and depression in 2026. They will say there is no way to accurately predict such an event so far in advance. But the cycle exists precisely because people don’t believe it.

There has been one fundamental cause of the boom and bust cycle: massive subsidies to land values. Since these subsidies are a governmental intervention into the market, the cause of the cycle is not “business,” hence the term business cycle is misleading. It is a cycle of economic distortions caused by government policies.

The reason why land is the most important element in the economic-distortion cycle is that much of the gains from economic expansion is captured by greater land rent. Then when speculators observe rising prices for real estate, they jump in, and increase the demand, accelerating the rise in prices. Land values then rise above the prices which those who actually want to use land can afford. High prices for land and high interest rates choke the expansion. As investment falls and workers in real estate lose their jobs, the economy falls into a recession.

By 2014, population growth and demolitions will have reduced the vacancies from the construction bubble, and then the growing economy will pull up rents and land values, attracting the speculation that will generate a ten-year real estate bubble that will peak around 2024.