After many years of sustained growth, the housing market has slowed: house prices are falling and there has been a sharp reduction in the number of new homes being built. The exceptional rise in property values in recent years was largely driven by higher income and demographics, but did appear to overshoot the sustainable level. House prices may ease further and could even fall below their long-run value. Residential investment is experiencing a sharp slowdown. This will have some effect on wider economic activity. If a more severe slowdown occurs, the housing market could pose risks for economic growth and the financial system. Phasing out policies that distort the housing market could help to dampen future housing cycles and maintain the competitiveness of the economy.