Australia’s flagging economy could be stimulated by a $2 billion federal government injection to fast track construction of 25,000 rental dwellings, the housing industry says.

But extending a more generous first home owner’s grant beyond June 30 is not a preferred option for the industry because it will remove the urgency to take advantage of the boosted grant.

Federal cabinet is meeting on Monday to finalise the government’s latest response to a flagging economy and the global financial meltdown.

Its first economic stimulus package included big increases to the first home owner’s grant scheme as a way of helping the housing industry out of a slump.

The Housing Industry Association (HIA) says constructing approved rental housing is now its priority.

“We think going to the private sector to provide part of their projects for low-income tenants could have quite an appeal,” managing director Ron Silberberg told ABC Radio on Monday.

The federal government could determine how much new product it wanted coming into the market to meet public housing needs and therefore how much it wanted to spend, he said.

That could be in the order of $1-2 billion to help fund the 25,000 dwellings already approved for construction, he suggested.

The HIA said it was not a preferred option to extend the boost to the first home owner’s grant beyond June.

AAP