approvals for detached houses are currently at levels seen during the low points of previous cyclical downturns, while approvals for higher - density housing are at, or even above, previous cyclical peaks. this may be an early indication of a new trend in the housing market. there are a number of reasons why this might be so. first, as the price of land has increased relative to incomes over the past few decades, it makes sense that there is an incentive to economise on the use of land – that is, by living in higher - density housing. second, it may be that the utility of living in detached houses on the fringes of many cities has decreased with increased congestion and the difficulties of travelling into cities to access job and other opportunities there. the third and closely related possibility is that there may have been a shift in people ’ s preferences towards living closer to the centre of cities and the existing infrastructure there. in any case, if this is a durable, structural change in the market, it will have important implications for builders and developers, particularly those whose business model is focused on detached housing. to understand what the strength of the increase in overall residential construction activity is likely to be, it is helpful to take a step back from the most recent few months ’ worth of data also, alterations and additions have continued to fall. the low level of dwelling turnover may help to explain some of the weakness in the level of renovation activity. this is because when people are selling their dwelling, or have bought a dwelling, they often undertake work of this sort. bis central bankers ’ speeches and look at developments over a longer period. the thing that really stands out over the past few years is that, despite the recent pick - up, dwelling investment as a share of the economy remains close to the troughs of over a decade ago ( graph 9 ). this relatively low level of dwelling construction raises the question of whether demand has been particularly weak or whether supply issues have constrained construction activity. factors affecting the supply of land for development will obviously have an important bearing on the cost of new housing, and the speed with which any increase in demand for housing can be accommodated by a rise in construction. i ’ ll come back to a discussion of some of these factors in just a minute. but the key point i want to make is that whatever these supplyside constraints might be, they don ’ t seem to have prevented an increase in construction across much of the country in 2009 and 2010

chance of error. the second line is the second layer, and provides a view of risk that is independent of the business area ’ s assessment. what is the value - add from having this type of second opinion? to start, while the business has the deepest understanding of its environment, operations, and objectives, the second line offers a perspective based on expertise in risk identification, analysis, and mitigation that is informed by its institution - wide view of operations and risks. this allows the second line to provide unique insights by aggregating risks across business lines, identifying interactions across risk types, and spotting anomalies in risk exposures or risk practices that deserve additional attention. there also may be externalities to actions taken in one business line that have implications for the risk of the institution as a whole ; it is the second line ’ s responsibility to articulate that perspective to senior management. the second line ’ s responsibility for establishing a common framework for risk management creates benefits in terms of both efficiency and effectiveness. the second line is an institution ’ s center of excellence in risk management and is in an ideal position to identify and promulgate best practices and standards. in terms of efficiency, the second line is wellpositioned to collect and analyze risk information coming from all of the business lines, to provide common risk management tools, and to provide guidance to business areas to improve their risk management capabilities. the bank ’ s third line of defense, internal audit, provides assurance to senior management and the board of directors that first and second line risk management and control activities are effective. although i did not say it before, the second line is not fully independent of management. this is because second line risk management ( in our case, the risk group ) is involved in a broad range of management decisions related to the bank ’ s risk controls, and, in terms of reporting lines, i am part of the bank ’ s management committee and report to the bank ’ s president. our audit group, however, provides a fully independent, final layer of defense. internal audit does not participate in management decisions, and our general auditor reports to the chair of the audit and risk subcommittee of the bank ’ s board of directors. in addition to defining clear and comprehensive risk management roles and responsibilities using the three lines of defense model, the bank ’ s risk framework establishes governance, escalation, and reporting processes around risk exposures, risk decisions, and risk events. a bis central bankers ’ speeches strong governance regime