This pro-cyclical, boom-bust pattern is, of course, neither new nor UK-specific. Over the past century, the UK commercial property market has experienced five distinct boom-bust cycles (Chart 1): in the 1930s, the 1950s, the 1970s, the 1990s and then again in this century. Peak-to-trough, the average price decline was 26%. The commercial property cycle appears to be every bit as regular as the business cycle, but with one key difference: its amplitude is perhaps three times greater. That pattern is replicated internationally. During this crisis, commercial property prices fell by 22% in Japan, 29% in Spain, 34% in the US and 67% in Ireland. Earlier, commercial property lay at the heart of the UK secondary banking crisis of the 1970s, the US Savings and Loans crisis of the 1980s, the Japanese and Scandinavian financial meltdowns of the early 1990s and the Asian banking crises of the late 1990s. During those crises, commercial property prices fell, on average, by around 40% and often by much more. The costs to the wider economy of these boom-bust cycles have been even more striking. Recessions that are accompanied by a property bust come with a much higher price tag. The cumulative loss of output from a residential property-related recession, for example, is around three times greater than a plain-vanilla recession at around 10% of initial GDP. Its duration is also around a third longer. It may not be an over-statement to say that, historically, commercial property has probably been the most pro-cyclical sector on the planet.
That twenty year period has been far from a quiet one, for the Bank or the commercial property industry. The Bank gained operational independence for monetary policy through the Monetary Policy Committee (MPC) in 1997; had its role in supervising individual firms first stripped from it in 1998 and then, earlier this year, re-instated through the Prudential Regulation Authority (PRA); and, most recently, has taken on responsibility for so-called macro-prudential regulation through the new Financial Policy Committee (FPC). The commercial property industry’s fortunes have been just as undulating. But throughout those ups and downs, the Forum has remained a key source of intelligence for the Bank and the industry and an important sign of cooperation between the Bank and the industry. Since 1997, the Forum has helped inform the deliberations of the MPC and, over the past few years, the PRA and FPC. And it was the success of the Forum that led me, three years ago, to set up a parallel Residential Property Forum, chaired by Nick Ritblat. Some of you will have heard me say that the Forum is one of the best meetings I attend at the Bank. And I know some of you, on hearing that, have been left wondering just what my other meetings must be like. Speaking on behalf of the Bank, I wanted to say how grateful we are to you all for those contributions. But what has the Forum achieved during its life? And, looking forward, what could it achieve in future?