A boost in house building contributed to an expansion in Australia's construction industry for January according to the latest Australian Industry Group/Housing Industry Association Performance of Construction Index.

Improved conditions in the country's apartment, engineering and commercial building sectors have also led to increased growth within the construction industry.

The seasonally adjusted Performance of Construction Index (Australian PCI) rose 8.4 points to 57.7 for January, above the 50 point level separating expansion from contraction.

In the industry's strongest performance in two years, the house building sub-index grew 10.3 points to 63.7.

Australian Industry Group (Ai Group) director for public policy, Dr Peter Burn said, "The construction industry has started 2010 on a positive note with a solid rise in new business driving growth in activity and a lift in employment.

"The improved conditions in January coincided with the reporting of increased tendering opportunities, new contract wins and a further uptake of work stemming from the Federal Government's infrastructure stimulus programmes. In particular, house building activity has continued to expand with the flow through of first home buyer financed projects and the lagged impact of last year's historically low mortgage rates.

"There was also a positive tone in other areas of the industry with work on apartments, engineering and commercial building projects all moving back into growth territory," Dr Burn added.

Senior economist for the Housing Industry Association (HIA), Ben Phillips said, "The boost in housing activity early in 2010 is a pleasing result for the industry. Detached housing continues to recover, boosted by the social housing stimulus and strong first home buyer activity. Following a long phase of declining activity, the apartment activity index shows tentative signs of a much needed recovery."

Mr Phillips added a housing recovery through 2010 and beyond will be vital to ensure housing affordability does not deteriorate further in the face of very strong population growth. He said higher interest rates and continued structural barriers to new housing will be the main threat to the housing recovery.

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