| Phase 1: The Initial ImpulseComes from Population Growth |
| The demand for land is the aggregate demand for a variety of uses
such as streets, parks, home sites, factory sites, stores, churches, schools,
governmental building, cemeteries, and railroad rights-of-way. All of these
demands increased when there was a surge in population. |
| Phase 2: Demand Exceeds Supply: Prices Are Rising |
| Gross rents begin to rise rapidly, at the very time as population is growing.
Net rents are the key to developers. (Net rent is gross rent minus maintenance
expenditures.) Net rents rise even moe rapidly during this phase of the
cycle. The surge in net rents causes a surge in prices of existing buildings.
At this point, it pays to erect new buildings. |
| Phase 3: Boom in Construction: Prices Peak during the Boom |
Developers scramble to build at many locations around the city. According
to Hoyt (page 387)
| |
a great many men worked secretly and independently on a great variety
of structures in many sections of the city. There was no central clearing
house to correlate the impending supply of buildings with the probable demand,
so that when all these plans came to fruitiion, an astonishing number of
new structures had been erected. |
|
| Phase 4: The Bust ---Falling Prices & Foreclosures |
| Gross rents fall, and net rents fall even faster. Land values plumet, and
foreclosures are everywhere. Nearly all phases of real estate activity are
virtually suspended. The lull lasts much longer than the boom. (Hoyt observed
that the bust periods were twice as long as the boom periods.) Developers
are hoping for another surge in population. When it comes, the cycle begins
anew. |
|
Closer Look at the Chicago Cycle at the end of the 19th Century |