Just 37,000 houses may be built next year as builders hold back on developments.

And that could lead to price hikes, the Irish Home Builders Association (IHBA) conceded yesterday. They claimed this raised the prospect of a shortage of new homes in key areas, including Dublin, from as early as this autumn.

The last time the number of new homes built in a year fell so low was in 1997, when completions were at 39,000.

A report from the IHBA admitted that builders held back on building dwellings from last summer because of uncertainty in the market, and that it could be 2010 before supply levels can meet demand.

The Department of the Environment says we need 60,000 homes a year built for the next 10 years, but the industry is not going to deliver on that.

The IHBA says just 82,000 homes will be built in the next two years, leading to a shortfall of almost 40,000.

"Current statistics on housing starts indicate that housing output could fall to as low as 37,000 units in 2009 compared with 45,000 this year," IHBA director Hubert Fitzpatrick said.

"Given that the medium term demand for houses is 60,000 units each year, this would result in supply falling far short of demand in key growth areas next year. Supply and demand equilibrium would not return to the housing market until 2010.

"This might bring an imbalance to the market."

Uncertainty

He added that the shortfall meant house prices were "likely" to go up.

However, uncertainty in the market was being addressed through changes in the budget to the stamp duty regime and increasing mortgage interest relief. A fear of further interest hikes had been dispelled, and demand for homes would increase especially as affordability had improved because of high salaries, reduced taxation and current house prices.

The EBS/DKM Affordability Index found that mortgage payments as a percentage of monthly disposable income were set to fall to 22pc by next May, a drop of 4pc since the end of 2006.

In a separate development the IHBA warned that up to 28,000 jobs will be lost in the construction sector this year.

Already 10,000 jobs have been lost so far, and a slowdown in housing starts and completions are likely to lead to further losses.

The Irish Independent, By Paul Melia, 12 March 2008