Construction activity was flat in October, as an interest rate rise and the reduction of stimulus for home buyers weighed on the sector.
The Australian Industry Group-Housing Industry Association performance of construction rose by 0.1 points to 50.9 index points in October from 50.8 in September, the second consecutive month the index has been over the 50 point mark denoting expansion.
The building sector provides crucial employment to the economy while creating demand for bank lending.
The report showed house construction grew at a weaker pace in October after the First Home Owners Grant boost was scaled back and interest rates began to rise.
The house sub-index fell to 51.2 points in October, from 64.4 points in September, AiG data shows, creating little relief for the 56,000 home shortfall estimated for 2009, as the population continues to expand.
"While there was a pick-up in the apartment sector, house building grew at a slower pace in October on the back of the winding down of the First Home Owners subsidy and rising interest rates," AiG associate director public policy Dr Peter Burn. "This suggests that a durable upturn in housing activity remains some way off."
The apartment sector posted its first rise in 21 months, with the sub-index gaining by 6.9 points to 53.2 points.
The employment sub-index edged up 0.8 points, rising to 52.6, the second only rise in employment since March 2008, following a strong improvement last month, the report said.
"HIA is concerned that the strong signs for new home building in the last report have been negated by increasing interest rates and the removal of the first home owners boost," HIA senior economist Ben Phillips said.
The Reserve Bank lifted interest rates 25 basis points in October and November, bringing the benchmark rate to 3.5 per cent.
With higher interest rates, Mr Phillips said, "the moderate recovery indicated by the index will simply not be enough to satisfy the demands of Australia's record breaking population growth."
czappone@fairfax.com.au
BusinessDay
