Boom and bust is the mother of negative equity, but in last month's budget speech, Gordon Brown made an astonishing claim: he had terminated the stop-go cycle that has afflicted Britain since 1701.

After a peak in activity in 1705, the next 300 years were sliced into a pattern of 18-year business cycles, each punctured by a mid-cycle recession. The dynamics of a 14-year construction cycle accounted for the major turning points. My investigation, Boom Bust*, leads me to believe house prices will continue to rise to a peak at the end of 2007.

The construction cycle is the outcome of the 5% compound cost of borrowing money. As usury laws were dismantled, the interest rate settled at 5% in 1714. Mr Brown said last month that under his stewardship, the rate averaged 5.2%. This emphasises the consistent features of 300 years in which the economy followed a stop-go path.

But because of that consistency, his claim of having halted stop-go cycles is untenable.

During the 1992 recession, we could have predicted a 2001 recession. And indeed, Mr Brown did preside over the manufacturing sector's recession that year. The slump that ends the present cycle will be in 2010.

In the past, it took wars to distort the cycle, but Mr Brown's reforms lacked that kind of firepower. In fact, he has stamped his mark on looming events in the property market. The affordable homes he promises to finance will exacerbate the top end of the cycle. This echoes Barber's 1972 boom and Lawson's of 1988.

But for diagnostic purposes, we have to identify land speculation as the primary agent of instability, and Mr Brown's investment plans will fuel land price rises.

When manufacturing went into recession in 2001, urban land prices fell. Greenfield land values have risen 40% since, and brownfield by 19%, a lower rate, but prices were still seven times higher than for rural sites with planning permission.

This impact is not registered on the Treasury's model of the economy, even though land values rose five times faster than the annual rate of inflation.

But boom and bust is not inevitable. The antidote is to be found in reforms to the way we pay for public services.

We should untax people's wages and savings: conventional taxes inflict deadweight losses on incomes. Instead, public services could be funded out of rents that people were willing to pay for the benefits they enjoy at a particular location.

That is efficient. Productivity would rise and speculation in gains from land would fall. It is also fair. It is the voluntary, self-assessment approach in which payments are direct and proportionate to the public services people want to use.

The Treasury is keen to fund infrastructure spending via land taxes. But its vision is limited to a development tax levied on gains in the value of agricultural land when planning permission for housing is granted. This is convenient for tax collectors but inefficient and unfair for taxpayers.

Politicians of all parties should champion a simple ad valorem charge on the location value of all land - excluding improvements such as buildings. A high enough rate would end boom and bust cycles and establish a new relationship between citizen and the state. The interface between the public and private sectors would be redefined, and many of the disputes that divide our communities would be resolved.

·Fred Harrison is director of the Land Research Trust

Boom Bust: House Prices, Banking and the Depression of 2010; Shepheard-Walwyn, 2005