A new study has predicted that housebuilding will peak at about 90,000 new homes this year and next before falling back to about 70,000 in 2008.
The value of the construction industry to the economy this year will be almost €40 billion, according to the report from DKM Economic Consultants.
Its Review of the Construction Industry and Outlook for 2006 notes that the economy has become very reliant on construction.
It points out that last year the industry was valued at €32 billion, some €18 billion of which was due to housebuilding.
The report warns that while the construction industry now accounts for almost a quarter of all the State's economic activity, the authors "subscribe to the view that this rate of housebuilding is not sustainable over the medium term".
It predicts that the ending of certain tax relief schemes and the dissipation of the special savings incentive scheme funds will contribute to a slowdown from 2008.
However prospects for the non-housing sector are bright, at least for the next few years, largely due to State infrastructure projects such as schools, water and power plants, roads and others.
But the report carried little evidence of success of Government policies aimed at balanced regional development, with just 29 per cent of all construction activity in 2005 taking place in the Border, midland and western (BMW) region, compared with 25 per cent in Dublin city and county, offering little evidence of the success of the National Spatial Strategy. The mid-east region, which includes Dublin, Meath, Kildare and Wicklow, accounted for almost 40 per cent of construction activity in 2005.
In the medium term, initiatives such as Transport 21 are expected to focus much infrastructure spending on the capital over the coming decade.
Commenting on the regional implications of the report, Minister for the Environment Dick Roche said while construction was most active on the east coast, employment in the industry had grown across the State.
He said house building would continue to perform strongly, underpinned by a strong economy, changing demographics and strong net inward migration.
Responding to questions on the spatial spread of construction activity, Mr Roche said the forthcoming National Development Plan would be specifically drawn up to tailor major infrastructure spending towards the gateways in the strategy.
He accepted that in recent years the major spending had taken place in the larger cities, but he said that was because it was the centre of the largest need, particularly in relation to water and waste water schemes.