Construction:The signs are that the rate of new homes being built may finally be slowing, but not by that much, writes Barry O'Halloran

The fact that most industry watchers believe that house building will begin to slow, after 2006 set yet another record, indicates that we have finally hit a peak after 13 years or so of sustained growth.

While the days of record-shattering statistics may be just behind us, though, this year cannot really be seen as a watershed, just the point where the market - and the industry - hit a plateau.

The number of new houses completed in 2006 could have hit a peak of anything from 92,000 according to Davy Stockbrokers or 96,000 according to Bank of Ireland. This compares to the 86,000-plus that the Central Statistics Office (CSO) says were completed in 2005, which was itself expected to set a never-to- be-equalled record.

The signs are that the rate at which new homes are being built is finally slowing, but not by that much. According to Davy Stockbroker economists Robbie Kelleher and Rossa White, completions next year will slip to 87,000 and to 82,000 in 2008.

When you consider that just before the boom kicked off, someone in the early 1990s predicted that the Irish market would never absorb more than about 20,000 new homes in a year, those figures are not bad at all.

Although the housing market has defied predictions of all kinds, the consensus is that 2006 was the peak. Not only that, activity has been slowing since a spurt in the first nine months, sparked by the fact that various tax incentives were ending.

Demand grew strongly as well, the key drivers were the approaching maturity of SSIAs, special savings incentive accounts and imminent interest rate increases. According to Kelleher and White, these factors spurred a frenzy in demand during the first half, particularly from first-time buyers and investors.

First-time buyers were conscious of the fact that rising rates would hit their ability to qualify for mortgages and took the plunge before this happened.

At the same time, prospective house purchasers also tried to anticipate any impact the SSIAs might have. These influences had the effect of bringing price increases forward.

The inevitable result was that demand slackened in the middle of the year and in October, new house prices fell by 0.4 per cent on the previous month, meaning that costs dipped by €400 in every €100,000.

However spreading that cost across the year meant a fall of 5 per cent, or €20,000, off the cost of an average home (€400,000). Davy's suggest that further adjustment indicates a sharper fall of 7.5 per cent in a year, or €29,000 off the average house.

News of the dip did not come as a great surprise to house builders or auctioneers, as asking prices on new developments had stayed the same for the previous few months. One reason was that first-time buyers were feeling the pinch. The numbers indicate that the number of new owners entering the market was falling.

Figures from auctioneer Sherry Fitzgerald indicate that they bought one in every three new homes in the first nine months of 2006, compared with 42 per cent in 2005 and more than half in 2004.

These statistics however pre-date the Budget, when the cavalry arrived in the unlikely shape of Minister for Finance Brian Cowen. He doubled mortgage interest relief for first-time buyers.

This will save €2.50 from every €100 in disposable income earned by a typical young couple and wipe out about 65 cents in every extra €1 paid on mortgages as a result of interest rate increases.

Builders, first-time buyers and consumer groups all praised the tax break. The move is regarded as being more likely to benefit buyers than would a cut in stamp duty, which most agreed would only boost vendors' fortunes.

However, there is a problem lurking on the wings in the Dublin area, one which the Construction Industry Federation (CIF) warns could lead to a bottleneck in supply. The number of planning permissions granted by local authorities in the area has fallen by 40 per cent over the last 12 to 18 months. The industry says that the reason is not caution on the developers' part, while the local authorities say there is enough land zoned to accommodate projected house building and demand for new homes.

The CIF agrees with this, but points out that in some cases, land is not serviced (that is, supplied with sewerage and other facilities), while in others, builders are waiting for infrastructure developments such as the Luas extension and road links.

The CIF says this has huge implications for the supply of housing in a region where the proportion of people of house-buying age is 10 times the European average.