The current building boom will have to be managed carefully to avoid overheating in the construction sector, the Minister for the Environment, Mr Dempsey has warned.

The warning came as the department's latest forecasts predicted that construction output is set to reach £9 billion this year, up 9 per cent on last year. This follows record 12 per cent growth last year. The document also showed that the strongest growth is in the housing sector, where a record of almost 39,000 dwellings were built last year

"Overheating would erode the real value of fixed investment in construction - 30 per cent of which is funded by the Public Capital Programme, and put house prices beyond the reach of more and more people - particularly first-time buyers," the Minister warned.

He said the challenge facing the Government, in partnership with the construction industry, is to manage the boom and avoid overheating in the sector. Mr Dempsey was speaking after the publication of the annual survey of the construction industry, by the Department of the Environment. It shows that between 1994 and 1997 building output has grown by 65 per cent. He said the growth rate was unprecedented in the history of the State and had not been matched by any other EU member in recent years.

This year the construction sector will account for one-fifth of national income, up from 14 per cent in 1994.

However, the building boom is putting pressure on some sectors of the industry. Mr Dempsey said tender prices have increased more rapidly than the cost of building materials and capital goods since 1996.

Mr Dempsey said that while this partly reflects recovery from depressed tender prices during the building recession in the early 1990s, "it would be a cause for concern if sustained into the future."

The Minister pointed out that average house prices have also risen sharply over the same period. However, in a statement, Mr Liam Kelleher, the director general of the Construction Industry Federation said the costs of doing business have risen for a variety of reasons, including increased land costs, development levies and the costs of meeting regulatory requirements.

Mr Kelleher added that the industry had demonstrated an ability to expand to meet the requirements of a growing economy and this expansion could continue.

Average weekly earnings in the construction sector increased by 11 per cent last year, compared to 1996. This comprises a 9 per cent increase in pay rates and a 2 per cent increase in hours worked.

There was also a significant increase in the numbers at work. Direct (on-site) employment reached 97,000 last year, an increase of 10,000 jobs on 1996. This is expected to grow by a further 8,000 this year. Total employment in the sector - including off-site employment - is currently estimated at 136,000, representing almost one-tenth of those at work.