5 08  09  Chart 8: 1970s – Real GDP and real lending  Annual growth  Annual growth  40  8 Mortgage lending (lhs) GDP (rhs)  30 20  6 4  10  2  0  0  -10  -2  Business lending (lhs)  -20  -4  -30  -6 -8  -4  0  4  8  12  Quarters from start of recovery (1975 Q4 = 0) * Lending series deflated using the GDP deflator. Household M4 lending is proxied with secured lending prior to 1980. Source: ONS and Bank of England  BIS Review 108/2009  13  Chart 9: 1980s – Real GDP and real lending  Annual growth  Annual growth  40  8 Mortgage lending (lhs)  30 20  6 4  GDP (rhs)  10  2  0  0  -10  -2  Business lending (lhs)  -20  -4  -30  -6 -8  -4  0  4  8  12  Quarters from start of recovery (1981 Q2 = 0) *Lending series deflated using the GDP deflator. Household M4 lending is proxied with secured lending prior to 1980.
Cycles of the past Let me start with the bad news. The Forum has assuredly not solved the problem of boom and bust in the commercial property market. Indeed, the environment today – slow recovery from a jarring commercial property bust – is eerily reminiscent of the situation twenty years ago when the Forum began. As Yogi Berra reportedly said, it is a case of déjà vu all over again. The Forum was born out of the commercial property crash of the early 1990s. Between 1989 and 1993, UK commercial property prices fell by 27%. This followed a long period of rising prices, high liquidity, expansive lending and weakening credit standards. These ingredients combined to create a classic pro-cyclical spiral. Higher valuations supported ever-larger  BIS central bankers’ speeches  1  loans on ever-finer terms, boosting valuations still further. When that pro-cyclical spiral went into reverse, it left banks, developers and investors all licking their wounds. Today, the situation is much the same. Commercial property prices are 37% below their peak. For secondary properties, they are more like 50% below their peak. This fall-to-earth came after a long wave of rising commercial property prices, deeper liquidity and rapid and, in many cases, imprudent lending practices. The subsequent crash has left banks, developers and investors not just licking their wounds but in some cases requiring life support. The commercial property bust has contributed to several UK banks departing the high street and the economy suffering its most painful contraction since at least the 1930s.