Housing is the "great hope" for the economy as the mining investment boom winds down, with the construction industry expanding for the first time in more than three years.
The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (PCI) rose 6.8 points to 54.4 in October, rising above the 50-point level which separates expansion from contraction.
The construction industry has been in contraction since 2010 and its return to expansion is being driven by residential construction, the report says.
The housing industry will be the key to bringing the economy out of below-trend growth, CommSec chief economist Craig James said.
The PCI was just another indicator, along with building approvals, housing finance and house prices data, of the growing strength of the housing market, he said.
"We think that housing is the great hope for the economy in 2014," Mr James said.
"We're seeing the baton passed from the mining sector to the housing sector.
"It's going to create jobs and that provides knock-on benefits for the entire economy."
Construction employment in October grew for the first time in 40 months, with businesses that raised employment indicating that the move reflected their increased workloads and expectation of sustained improvement in demand, the report said.
Apartments recorded the strongest growth, up 8.5 points to 66.2, while house building rose 3.8 points to 65.3 - the highest activity reading for those sectors in the survey's eight-year history.
The report said businesses attributed the improved activity to strong levels of demand and increased tender opportunities, while house and apartment builders said owner-occupier inquiries and buyer confidence were strengthening.
"The sharp lift... is a very welcome indication that we could be on the cusp of the long-awaited recovery in the construction sector," Australian Industry Group public policy director Peter Burn said.
"Consolidation over the next few months will show whether a sustained recovery will be built on the combination of renewed confidence and low interest rates during the first half of 2014."
The expansion is a milestone moment and heartening news for the construction industry, Housing Industry Association chief economist Harley Dale said.
"What appears a sustained improvement in house and apartment activity and new orders is consistent with a broader recovery evident for leading indicators of new home building," Dr Dale said.
"Activity and new orders for houses indicate further upward momentum ahead for detached house building approvals, itself a further tick in the box for a sustained new home building recovery."
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