Builders are losing money because of a "huge gap" in the cost of erecting a house and what it can currently achieve on the open market.
The market value of a house in an urban area can be as low as €154 per square foot, despite recent price rises.
But the cost of bringing a house to the point of sale in these areas can be up to €220 per square foot.
Industry figures are calling on the Government to abolish both VAT on new homes and Part Five social housing levies on developers, in order to make house building economically viable again.
A nationwide estate agency network says its members are daily encountering issues of severe housing shortage.
The Real Estate Alliance (REA), which is comprised of 55 membership firms from all Irish counties, says Government action would immediately knock €60,000 off the cost of building an average home and enable home building to become financially viable.
As it stands, in many parts of the country home values are below the cost of building an equivalent new house.
REA asserts that the abolition of the 13.5pc VAT rate on new homes, along with development levies, have become the key components to solving a national housing supply crisis
The REA says the VAT is not benefiting the Government coffers as much as it could, because so little construction is taking place anyway.
It says that output will fall 10,000 short this year of the estimated 25,000 homes required.
A nationwide lack of suitable housing supply, especially in three and four-bed family starter homes, has led to a stagnated property market.
"There is a huge gap in the cost of building and bringing a house to the point of sale and what it can achieve on the open market. Unless this gap is closed, we will not halt and solve the growing national housing crisis," said REA CEO Philip Farrell.
"In urban areas around the country, the market value of a house is €154 per square foot, based on the Real Estate Alliance and Irish Independent average house price survey price of €162,477 completed at the end of March.
"This rises to €157 per square foot in commuter areas and the larger cities outside Dublin, where the average house price is €165,798.
"However, the cost of building and bringing a house to the point of sale in these areas is anything up to €220 per square foot - a figure that is even higher in the capital.
"In an environment where such a big gap exists, there is no incentive to start building, and the State must work to close this uneconomic gap.
"There are only two ways of closing the gap to make it financially viable for builders to build and that is for prices to rise or for the cost of building to be reduced.
"In country and commuter areas where the average value is below €200,000, supply of new homes will remain reduced even if lands become available due to financial issues for developers."
Introducing a zero VAT rate on new homes would reduce the cost of building €250,000 property to €220,000, said Mr Farrell. The additional abolition of Part Five levies would decrease that cost again to €190,000.