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Home building binge worries RBA

Going up: The WA home building binge has the RBA worried. Picture: Megan Powell/The West Australian

West Australians have gone on a home building binge just as the Reserve Bank warns growing levels of household debt and unemployment is making borrowing more risky.

As spending by the mining sector winds down, new figures from the bureau of statistics show it being offset to a large extent by homeowners and landlords.

In the three months to the end of March, West Australians spent more than $20 billion on residential construction.

It is a record high and was a 12.4 per cent or $225 million lift over the previous 12 months.

The residential building sector is increasingly important given the sharp fall in spending by the mining sector.

Engineering construction fell to its lowest level in four years through the March quarter to just $7.8 billion in WA. A year ago it stood at $10.2 billion.

The Reserve Bank has taken official interest rates to a record low 2 per cent in a bid to boost the housing sector and consumer spending to offset the fall in mining activity.

But the RBA is concerned about the dangers posed by such low rates.

Bank deputy governor Philip Lowe said yesterday the mortgage books of the nation's banks were facing increased risks because of the general economy.

He said the sharp lift in property prices, particularly in Sydney and Melbourne, coupled with high levels of household debt higher unemployment, all posed greater risks.

Those people piling into the property investment market were most at risk.

"Household debt is high, property prices are very high, household income growth is slow, the unemployment rate has drifted up - all those things would suggest there has been an increase in the level of risk, particularly as people have bought property for investment purposes," he said.

The figures also suggest price pressures are building in the construction sector, a development that will be of concern to the Reserve Bank. Building sector inflation is now at a 6-year high.

CommSec economist Savanth Sebastian said while overall construction spending was falling, it was coming off from a very large high.

"While construction work is down around 10 per cent from the 2012 record highs, it had risen by over 50 per cent over the previous five years," he said.

Figures due out today will reveal that extent to which major firms are cutting their investment plans over the coming year.