Why the 18.6 Year Property Cycle is Wrong

Real estate is essentially a matter of supply and demand.

‍

At its core, no matter how many metrics you look at, the key drivers in property markets are how much housing is available (supply) and how much people are willing to buy or rent (demand).

‍

Right now, the data we're seeing on supply is worsening—there are fewer properties available than ever before. Many people think we are nearing the peak of the market simply because property prices have become unaffordable. However, this isn't necessarily the case.

‍

To understand the true state of the market, it’s crucial to consider all the factors at play, including both lead (early indicators) and lag (delayed indicators) data. But the fundamental idea of supply and demand still holds true.

‍

When you also factor in consumer confidence, which is currently at record lows, it's clear we are far from the peak of the market. This is why the 18.6 year property cycle may not fully apply to Australia’s current conditions. That’s why it's important to:

1. Realign your expectations—don’t be swayed by outdated theories.
2. Be cautious of advice—especially if it’s coming from someone like your uncle who may not fully understand the current market dynamics.

‍

If you’re interested in hearing my thoughts on this, keep reading.

‍

‍

Housing Supply Has Crashed 

‍

Housing supply is set to hit its lowest point in over a decade. By 2026, new home supply will drop significantly, worsening both housing and rental affordability, and leaving the federal government far from its goal of building 1.2 million homes by 2029. In 2026, only 79,000 new homes will be completed across capital cities, a 26% drop from 2024, due to:

• Planning delays
• Labor shortages
• Rising material costs

‍

If you're wanting to live in a house, and you want to live in a metro city, a capital city where there's high-density living—then it's almost going to become impossible over the next couple of years.

‍

This is why investing the right way can make such a big difference.

‍

‍

Will the 18.6-Year Cycle Play Out in Australia?

The 18.6-year property cycle predicts a housing slump, potentially driving up house prices and rents even further. However, there are doubts about whether this cycle will play out as expected in Australia, given the unique challenges the country faces.

‍

‍

The 1.2 Million Homes Target

‍

To meet the government's goal of building 1.2 million homes by 2029, the industry needs to build 300,000 homes between 2026 and 2029. With current supply chain issues, rising material costs, and labor shortages, it’s unlikely this target will be achieved. If the supply of homes does increase drastically in 2026, it could lead to a market crash if demand doesn’t match that supply.

‍

The 18.6-year property cycle is based on Western economies, but it may not perfectly apply to Australia’s market. While cycles often repeat, local economic factors could push the peak later, possibly into 2028. If you wait for the peak, thinking it’s in 2026, you could miss opportunities and face challenges as the timing shifts.

‍

‍

Construction Sector Struggles

‍

The construction industry is facing several hurdles. A large backlog of approved properties remains unbuilt, partly due to rising interest rates, which have made borrowing more expensive. Builders with fixed-price contracts are also struggling financially, unable to absorb cost increases. Meanwhile, supply shortages and planning delays from local councils continue to slow down the process, further pushing back construction timelines.

‍

High-density housing, like apartments, faces fewer delays and can be built faster compared to low-density housing, which requires longer approval and construction times. This makes apartments a quicker solution in high-demand areas.

‍

‍

The Influence of Immigration on Housing Demand

‍

Immigration has played a key role in shaping the current housing crisis. To understand this, let's break it down into two parts: the supply side and the demand side.

‍

‍

Supply and Demand Dynamics

‍

In the absence of immigration, the housing crisis might not have been as severe. Here's why:

1. Declining Supply: When housing supply drops and there's little construction, market forces take over. Fewer homes are available, leading to increased competition for the homes that do exist.
2. Demand Issues: Without immigrants, fewer people would be vying for homes, as many would not be able to afford them. This would ease the pressure on the housing market and reduce demand.

‍

However, even if we had fewer immigrants, we would still face significant challenges in the rental market due to supply shortages.

‍

While immigration has added pressure on the housing market, it has also played a vital role in keeping the economy afloat:

• Economic Growth: Immigration is one of the key factors preventing a recession in Australia. Although we are in a per capita recession (a decline in economic activity per person), the broader economy has been spared due to the influx of immigrants. This raises questions about whether the 18.6 year property cycle fully accounts for the role of immigration in sustaining housing demand.

‍

‍

The Housing Growth vs. Population Growth Debate

‍

Looking at the relationship between population and housing growth:

• Graph Insights: Historically, the gap between population growth and housing supply was manageable. However, post-2020, this balance has become volatile.
• Post-Pandemic Trends: The introduction of home builder packages initially improved the dwelling-to-population ratio, but it has since dropped to record lows. Immigration, particularly after the reopening of borders, has driven population growth, but housing construction hasn’t kept up.

‍

Immigrants have been crucial to addressing labor shortages in construction. However, despite their contribution, the demand for housing is still much higher than the actual supply being built, exacerbating the crisis.

‍

‍

My Final Thoughts

‍

Real estate isn’t something that can be fixed overnight—it’s a long-term game that moves slowly, but that’s what makes it so valuable for wealth-building. If you’re looking at investing in property through your SMSF, make sure you understand the key benefits and challenges. Unlike volatile markets like crypto, where emotions lead to poor decisions, real estate tends to offer steadier returns. Even if property values dip by a few percentage points, the overall trend is upward in the long run.

‍

High-net-worth individuals invest in real estate because, over time, it delivers reliable growth. When you consider factors like supply constraints and the expectation of lower interest rates next year, it's clear that demand is just waiting to return. While some rely on the 18.6 year property cycle to predict market movements, real-world factors suggest as demand rises and supply remains tight, prices will likely increase.

‍

‍

Looking Beyond Popular Theories

‍

While the 18.6-year property cycle theory is gaining popularity, I remain skeptical. The real data we’re seeing suggests that prices will continue to climb in the coming years.

‍

If you’ve found this valuable, consider sharing it with someone who might benefit and if you want more information, watch my youtube video here on this exact topic. And if you’re serious about building wealth through real estate, check out my book, Retire Filthy Rich with Real Estate, for more insights on making smart investments. You can also consider working with a professional buyer’s agent to help you secure high-growth properties.