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Construction collapse worst here, house values still in freefall

Irish construction activity dropped more than in any other EU country last year, according to a new report.

A drop of 33pc in Ireland compared an average of 1.8pc in the EU, highlights the severity of the construction collapse here.

The European Construction Industry Federation (FIEC) report also said that the Irish Government continues to cut capital investment while other countries increase their spend on infrastructure projects to stimulate growth.

The Report also shows that construction in Ireland, as a percentage of Gross Domestic Product (GDP), or output, is falling way below the EU average and that further declines in 2011 will see the Irish industry at less than half its European counterparts.

Construction in Ireland in 2010 fell to 8.4pc of GDP but is expected to fall further again in 2011, falling to less than 6pc of GDP and less than half the level in European economies with far greater accumulated capital stock levels than Ireland.

Speaking on the findings of the FIEC survey, the CIF’s Director of Policy and Research, Martin Whelan said: “This Report underlines the severity of the collapse in the construction industry here and the fact that, in the absence of a national strategy for the sector, its potential contribution to economic recovery will remain undermined.”

He added that the industry, in line with the economy in general, grew to levels that were simply not sustainable - particularly in the period 2004 to 2007.

Meanwhile, Irish ouse prices are continuing to fall and slumped just over 12pc in the year to end May – the same rate in the 12 months ended April.

The cost of residential homes dropped 1.2pc in the month of May but in Dublin they were up 0.4pc, according to the latest Central Statistics Office Figures (CSO).

Year-on-year Dublin prices fell 11.5pc and statisticians warned against interpreting monthly figures as they may reflect short-term volatility rather than an underlying change in longer-term price trends.

In the Dublin region, apartment prices continue to fare worst and were off 14.8pc compared with May of last year.

House prices in the capital are now almost 46pc lower than their highest level in early 2007 with apartments down 53pc in the same period.

The cost of homes outside Dublin also dropped and fell by 2.1pc in May compared with a decline of 1.2pc in the same month of last year.

But the prices of houses outside the capital are somewhat lower at 38pc – against 2007 levels.

Economists said that the lack of funding from banks will continue to drive prices down.

“Credit constraints will continue to be the major influence on house price trends overall,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers.

“We would not focus too much on monthly changes due to their volatility, but we would expect this trend of outperformance in the Dublin market to continue given the supply/demand dynamics and that fact that the price decline from the peak outside of Dublin (-38pc) has been significantly less than inside Dublin (-47pc) thus far.”

According to a recent Reuters survey, house prices are likely to continue falling for some time yet, said Alan McQuaid, chief economist at Bloxham Stockbrokers.

“The poll predicts that house prices will decline by a further 7pc on average in 2011.

“Given weak labour market conditions and the continuing lack of available bank credit it is hard to be optimistic on the prospects for the property market in the immediate future.”