Summary
Hoyt’s 1947 address to the American Finance Association — delivered as associate professor at MIT — is a primary source for how real estate cycles operate and their impact on mortgage finance. Hoyt describes the mechanism from population growth → rent rise → construction boom → speculative platting → surplus → collapse, and gives empirical data on how Chicago office buildings saw net income fall 74% even as gross income fell only 26% (1928–1932), explaining widespread mortgage default. He was writing fresh from the Great Depression, questioning whether the cycle would repeat.
Key Claims
- The operating leverage problem: Chicago office building gross income fell 26% (1928–32), net income fell 74.3% — because operating costs (taxes, labor, debt service) are rigid downwards — confidence: high [Source: Hoyt, AFA Address, 1947]
- Average price of office building bonds fell from 187 in 1932 — the debt collapse — confidence: high [Source: Hoyt, AFA Address, 1947]
- Cycle mechanism: population influx → vacancy absorption → rent rise → net income rise → construction boom → speculative lot platting → surplus of homes — invisible during prosperity, revealed by any business recession — confidence: high [Source: Hoyt, AFA Address, 1947]
- Cycles vary dramatically by city growth rate: Los Angeles grew 150x (1900–1940), Charleston SC grew only 13% — cycle amplitude scales with growth rate — confidence: high [Source: Hoyt, AFA Address, 1947]
- Timing varies: Wenzlick’s national 1888–1889 peak was actually 1887 in LA, 1888 in Kansas City, 1890 in Chicago — local variation within a national pattern — confidence: high [Source: Hoyt, AFA Address, 1947]
- Cycle peaks in Chicago (primary data): 1836, 1856, 1872, 1890, 1925 — consistent ~18-year intervals — confidence: high [Source: Hoyt, AFA Address, 1947]
- The vital question (1947): “will the pattern of the real estate cycle from 1914 to 1933 repeat itself?” — Hoyt’s concern that post-war interventions might have altered it — confidence: high [Source: Hoyt, AFA Address, 1947]
Notable Quotes
“The most important cause of fluctuations in the gross and net income of real estate and consequently the chief factor in producing drastic changes in the capital value of all the different species of urban property is that group of interacting forces which is called the real estate cycle.”
“When a business recession forces families to double up or to move from the larger cities to smaller towns or country districts. Then declining rents and increasing vacancies sharply reduce net incomes and capital values, bringing new construction to a standstill and causing wholesale defaults and foreclosures.”