By Matthew Corder of the Bank's Structural Economic Analysis Division and Nyssa Roberts of the Bank's Conjunctural Assessment and Projections Division.
Dwellings investment (house building and home improvements) can have a large impact on GDP growth. This article presents an economic framework that helps explain movements in UK dwellings investment. House building responded sluggishly to rising house prices in the earlier part of this decade. This partly reflected lags in the construction cycle, but also increasing costs arising from the planning process. Such factors are less likely to restrain a downward adjustment in house building, and since late 2007 house builders have cut production sharply in response to lower house prices and housing market activity.