Is it better to Have Boomed & Bust than Never to Have Boomed at all

Has anyone noticed that the places in the world that saw property prices growing the fastest have seen the worst crashes sincere things turned sour -- as always with a few exceptions to the rule. This led me to ask the question: is it better to have boomed and bust, than never to have boomed at all.

The best way to answer that question is to look at some places which saw booms, and then some places that didn't, against what their property markets currently look like and draw my conclusions from that.

The best to look at initially, quite simply because detailed information on price growth is more readily available is the UK:

UK house prices grew 49% in the 1970s, 43%in the 1980s, and shrank by 19% in the 90s. In fact prices fell almost continuously between 1989 and 1996 before starting to see some growth again. As we all know, this became the next boom, and in the noughties (2000 - 2009) UK house prices grew an astonishing 68%.

So, for anyone who bought a house in 2000, they can currently sell even at a massively reduced price and still make a good profit, so they will be happy with the boom bust performance of the UK housing market. Equally happy will be the owner occupiers that bought 30 or 40 years ago. The thousands of people who have fallen and currently languish in negative equity because of a combination of irresponsible lending and the crash in prices will be less happy, and so are the thousands of people who cannot afford to buy a house in the area they have been born and raised.

Dubai and Spain are of course other fine examples of why boom and bust is not an ideal way for a property market to exist: both enjoyed unbelievable booms in recent years, and both will be lucky to ever have investment-worthy property markets again. Ireland is another example of why boom and bust is bad, because the recent boom in the property market now threatens to bust the entire economy.

Kuwait and Abu Dhabi, they have, so far had the right idea; with neither having a real boom in prices, both continuing to enjoy steady growth in the property market throughout the crisis. However, according to a report today property sales in Kuwait have risen 41% in the space of a year to the end of last year, and so maybe its boom is on its way.

Of course there are exceptions to every rule: Poland strikes me as one example. When it joined the EU it did enjoy a boom as overseas buyers and investors flocked into the country, yet according to the recently released Knight Frank index property prices have continued to grow on a quarterly basis throughout the worst of the crisis; by 4.4% in Q4 last year, 7.3% in Q1 this year, and 0.7% in Q2. At least that is how it seems to the outsider; but Poles have been priced out of the market for some time, which does not bode well for the long term future of the property market or the economy.

In my opinion it is not better to have boomed then bust than never to have boomed at all, unfortunately it is unlikely to be a cycle that ever stops in property markets around the world. The only thing that can be done is to cap growth, or increase the capital gains tax on property sold before 10 or 20year or on property not occupied by the owner. This way people could still make buy to let investments... Well, I did say it isn't likely to happen.

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