Because property prices increase faster than wages do, property eventually becomes unaffordable for the majority of people. When this happens, the bust comes: property prices plummet, causing chaos for the banks (which have been lending money secured against high-priced property). The banks withdraw lending, building activity stops, and businesses shut down – which all have obvious knock-on effects for stock markets and employment levels. Eventually of course, prices drop to a more sustainable level and everything gradually goes back to normal – at which point the whole cycle starts again.
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The Property Cycle
