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First home buyers boost construction industry -

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SHANE MCLEOD: The rush for the last of the increased first home buyers grant seems to have boosted
the construction industry.

A private sector survey of the industry showed a jump in activity in September, helped also by the
Rudd Government's infrastructure spending.

For the first time in 19 months the industry has expanded and home loans to investors have jumped,
although first home buyers are pulling back.

More from finance reporter Sue Lannin.

SUE LANNIN: The construction industry has been in the doldrums for a year and a half but now it's
finally starting to grow.

Tony Pensabene is the chief economist from the Australian Industry Group.

TONY PENSABENE: Looks like the industry's pumped and primed for a fair bit of new housing
construction to take it through right to the middle of next year.

SUE LANNIN: The AI Group carries out the Performance of Construction Index with the Housing
Industry Association.

The index came in at 50.8 in September - it jumped by just over eight points from August.

Tony Pensabene says the rush by first home buyers to get the bigger government grant before it ran
out at the end of September was a factor.

TONY PENSABENE: I think there might have been an element in that, but I think generally what we're
seeing is the combination of low interest rates, the boost that we've had to the first homeowners
scheme. Both have acted in a way to encourage potential home buyers to look for getting into the
market and the construction sector is also offering significant discounts in order to attract
clients.

SUE LANNIN: Do you think this rise is sustainable? Because the index was at just under 40 back in
July and it seems to have improved by quite a lot since then.

TONY PENSABENE: We've been hearing for months now amongst house builders that demand for new homes
was building and we know that there is now a long pipeline of demands for new homes. The lowering
of the first homeowner grant will reduce demand somewhat, but the basic point is that there is now
an underpinning in the housing market that's going to provide it with jobs, growth and activity
into next year. What we still need to see is a pickup in commercial construction, apartments, which
is a very difficult market, and some of those infrastructure programs to come into the pipeline.

SUE LANNIN: Ben Phillips from the Housing Industry Association is optimistic but is worried about
further rises in interest rates.

BEN PHILLIPS: We'll only get worse in the apartment sector. It's a bit of a double blow I suppose
that you've got difficulties in obtaining finance and the level of presale remains very high across
the board in the apartment sector. And now of course on top of that you've got the prospect of
increasing interest rates which will slow down the demand side. So it's both a supply crunch and
also a hit to demand is what we'll see over the coming 12 months if we do have the strong increases
in interest rates.

SUE LANNIN: Paul Brennan is the head of economics at Citigroup. He thinks there is a recovery going
on.

PAUL BRENNAN: I think that we're just really at the start of it and when you're at the start of a
recovery people still aren't certain about exactly whether it's sustainable and how strong it will
be. But looking ahead I think, you know, there is some good scope to see housing activity pick up
quite nicely over the next 12 months.

SUE LANNIN: Official figures show the value of home loans increase by 0.7 of 1 per cent in August
to $22.7 billion. The value of loans to investors jumped nearly 8 per cent. But those to owner
occupiers fell almost 2 per cent, as did the number of loans borrowed.

And first home buyers pulled back to just under 25 per cent of owner occupiers taking out loans.

SHANE MCLEOD: Our finance reporter Sue Lannin.