Oz building slows for ninth month

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Australian construction activity contracted for the ninth consecutive month last month amid tight credit conditions, weaker demand and higher interest rates, a report says.

But the pace of contraction slowed last month as better weather allowed fewer disruptions to building projects.

The Australian Industry Group-Housing Industry Association's performance of construction index (PCI) rose 4.4 index points to 44.6 points in February.

Despite the improvement, the measure stayed below the key 50 point level that separates expansion from contraction.

The last time construction activity expanded in Australia was in May last year.

"Businesses that reported declines in activity generally attributed this to subdued demand, tight credit conditions and diminishing work from school building projects," said the report, published yesterday.

"Residential builders also cited the negative influences of higher interest rates and weak levels of buyer confidence."

Of the four major industry sub-sectors, three experienced a contraction in construction - housing, apartments and commercial buildings.

The fourth, engineering, gained 13.3 index points to 52 points, thanks to an increase in new orders.

Australian Industry Group director of public policy Peter Burn said while housing construction activity continued to disappoint - the housing sub-index fell 3.1 index points to 34.2 points in February - there were some positives.

"There are some signs that activity in the other sub-sectors may improve in the months ahead," Burn said.

"The expansion in activity recorded by engineering construction and the slowdown in the pace of decline of activity in apartment and commercial construction provide some encouragement.

"The forward-looking new orders indicator points to a similar pattern of improvement."

Housing Industry Association senior economist Andrew Harvey said the PCI report was in line with other data points highlighting "considerable weakness in the residential building sector".

"It's increasingly clear that the 2010 interest rate hikes have battered the housing industry," Harvey said.

He noted the Australian Bureau of Statistics' figures that showed total dwelling approvals fell to the lowest level in more than eight years in January and said reform to the supply side of the housing market was needed.

He called for the removal of stamp duties on new homes and faster land release processes.

- AAP