Australia's two-speed economy is evident in the building sector, industry advocates have claimed.

Following yesterday's ABS figures showing a decline in every sector of construction except engineering, Master Builders has claimed a divide is evident in the building sector. With residential building declining a seasonally-adjusted 7.6% in the June quarter, Master Builders chief economist Peter Jones said outlook for the sector is grim.

"For the building and construction industry overall, a sectoral divide is opening up, with strong engineering construction fed by the mining boom contrasting with a weak building sector caught in the slow lane of a post GFC economy struggling to transition to a private sector led recovery," he commented.

Jones said the figures confirm evidence from a Master Builder's survey, indicating falling builder sentiment in the commercial and residential sectors, and downturns in forward indicators.

"After promising so much, residential building is struggling to regain lost momentum triggered by last year's interest rate rises and the ongoing credit squeeze that continues to suppress the upturn," Jones said.

HIA chief economist Harley Dale said the weak residential building sector is likely to detract from GDP growth. The HIA pointed to a 3.4% rise in renovation work, arguing homeowners are increasingly staying put rather than trading up.

"Major renovations activity continues to grow as Australians increasingly baulk at the mounting transaction costs and taxes they will incur if they trade-up to another property or build a new home," Dale said.