The aim of this thesis project is to understand how policy instruments influence the adoption of wood-based building practices and to examine the effect of increased wood-based construction on circular practices. This study identifies key actors in the built environment, including housing associations, private owners, construction and demolition companies, and material suppliers. The behavior and relationships of these actors are analyzed. An agent-based model is developed to explore the impact of various policy instruments, such as carbon taxation, demolition notification, and knowledge sharing. The study revealed several findings. First, there is significant inertia among construction compa- nies and building owners towards adopting wood-based construction, primarily due to high initial investments and lack of familiarity. This results in a hefty premium being paid for wood-based construction before it becomes well established. It was discovered that a substantial subsidy on mass timber is essential. Additionally, significant taxation on reinforced concrete, such as through carbon taxation, helps overcome the inertia in the system. Another effective instrument is the sharing of wood-based construction knowledge among construction companies. Once wood-based construction is established, it becomes cost-competitive, reducing the need for continuous stimu- lation through policy instruments. With the establishment of wood-based construction, several effects on the circularity in the built environment and material usage have been identified. Despite a shift to wood-based construction, the demand for concrete remains significant. This underscores the importance of concrete recycling practices. The increase in wood content in construction requires enhanced mass-timber recycling practices. This study highlights the role of temporary material storage in facilitating circularity. It suggests the need for strategies to match material streams from demolition to construction. In summary, this thesis project demonstrates that a combination of policy instruments, especially carbon taxation and knowledge sharing, is crucial in transitioning to wood-based construction. The study highlights the need for continued attention to concrete use and recycling, especially when wood-based practices gain traction.