It is growing strongly in response to low interest rates, rising by about 9 per cent over the past year (Graph 2). The results of a standard ‘single-equation’ reduced-form model suggest that the response (to date) of residential building approvals to lower interest rates and higher housing prices is broadly consistent with historical experience.
7 Although the behaviour of construction investment over the past few years is not unusual, it is possible that with a period of very low rates there will be some limit as to how much demand for dwelling construction can be brought forward from the future.