A Simple Theoretical Model of the Office-Development Cycle

Abstract

The author proposes a simple theoretical model of the accelerator type which helps to explain some observed characteristics of the pronounced office-development cycle in Britain. The British economy is currently experiencing its third major postwar cycle, the previous peaks of development activity having occurred in the early 1960s and early 1970s, the latter during the famous ‘property boom’. The author begins with a summary guide to the literature on building cycles, examining the various exogenous factors which have been proposed to explain these cycles and identifying a crucial endogenous causal factor, which is the long production period between new building orders and completions. This delay is incorporated into an accelerator model of the development process, yielding a second-order difference equation which generates cyclical fluctuations around an equilibrium growth path. The behaviour of the model is then tested using typical values of the main parameters, and compared with the results of previous empirical research on the office-development cycle which has focused on the interaction of the user demand, investment demand, and development supply of new building.