Robust house building activity is likely to drive overall construction activity in coming months, Ai Group says.

Ai Group head of policy Peter Burn said house building offset weakness in apartment, commercial and engineering building activity in March and that trend was set to continue.

“With apartment activity trending down from historic highs, with commercial construction patchy at best and with engineering construction dominated by the wind-down of mining and energy-related projects, growth is relying heavily on the housing sub-sector,” Mr Burn said in a statement.

“And the outlook for the next few months is more of the same, with house builders reporting strong growth in new orders whereas for the rest of the sector new orders were down sharply in the month.

The Ai Group and Housing Industry Association Performance of Construction Index (PCI) fell in February, dropping 1.9 points to 51.2 points from 53.1 points a month earlier but remaining above the 50-point level indicating expansion.

Housing Industry Association chief economist Geordan Murray said while residential building activity was edging back up to an all-time high, apartment building activity was likely to contract further.

Mr Murray said the weakness in commercial and engineering building was not ideal for the building sector.

“With the positive contribution from the residential sector waning, if we are to see the Australian PCI remain in expansionary territory we will need to see a more broad-based recovery in non-residential construction,” Mr Murray said.

The index showed falls in new orders and deliveries also weighed on the overall pace of expansion in the sector in March.

Ai Group said pressure from rising wages and input prices was partially being passed on to buyers, with the selling prices sub-index remaining in expansion in the month.

However, builders noted high competition in tender pricing kept profit margins under pressure in March.

By Marty Silk