Residential investment: bubbles and crashes in the UK housing market, 1980–99

The aim of this chapter is to show that the theoretical concepts presented in earlier chapters have applicability beyond business investment and can be applied to the investment decisions made by ordinary people buying new houses, i.e. residential investment. Understanding residential fixed investment is complicated by the fact that, unlike business fixed investment, housing investment combines the characteristics of production goods and consumption goods. Although residential investment does not augment future productive capacity and so does not, in itself, contribute to output and employment growth, its effects on the macroeconomy are far-reaching.