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Rate cut warning as house building slows

AAP logoAAP 5/08/2016 Trevor Chappell

Growth in the construction of new housing has slowed, and the failure of the big banks to pass on in full the recent Reserve Bank of Australia interest rate cut will limit potential stimulus for home building, says the Housing Industry Association.

The Ai Group and the Housing Industry Association on Friday released the Australian Performance of Construction Index for July, which showed that the national construction industry expanded for a second month in a row albeit at a slower rate..

The index fell 1.6 points to 51.6 points. Readings above 50 indicate expansion.

Further expansion in house building was the main driver of growth but also slowed, falling 7.2 points to 54.9 points.

Commercial construction lifted slightly, but engineering construction and apartment building contracted.

Housing Industry Association senior economist Shane Garrett said detached house building was a bit stronger.

Apartment building fell back from record levels and is expected to fall further over the next few years.

"The failure of the major banks to pass on Tuesday's RBA interest rate cut (in full) means that any benefits for new home building activity are likely to be limited," Mr Garrett said.

The Reserve Bank on Tuesday cut the cash rate by 0.25 per cent to a new record low of 1.5 per cent.

But National Australia Bank will cut its standard variable rate for owner occupiers by only 0.10 per cent, ANZ by 0.12 per cent, Commonwealth Bank 0.13 per cent and Westpac 0.14 per cent.

.Ai Group head of policy Peter Burn said work was shifting away from the mining sector to the residential and transport infrastructure sectors.

Mr Burn said all sectors except engineering construction had a lift in new orders in July, which was encouraging.

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