A construction slowdown that threatens the pace of future housing supply has worsened over the summer, according to new industry data.

July’s Construction Purchasing Managers’ Index (PMI) points to an accelerating decline in Irish construction activity, according to the latest regular survey from BNP Paribas.

The figures suggest builders are responding to construction costs and general economic uncertainty by slowing new projects even as this year’s completions surge.

The figures suggest a slowdown in all major construction headings – home building, trade and civil engineering.

There is no indication that activity already underway is slowing and employment levels unchanged, but builders increasingly expect next year to be less busy than 2022. That’s particularly bad news for housing supply, where production is still well below the level needed to meet annual demand or offset a decade of undersupply.

Director and head of research at BNP Paribas Real Estate Ireland, John McCartney, said a steeper contraction in July compared to June reflects several factors, including higher costs affecting the viability of projects as well as the high pace of the first half of the year, which can simply be difficult to maintain.

“Based on projects already underway, we expect strong residential, office and logistics completions to continue through 2022. However, continued cost inflation means new projects may struggle to tracking completions, which is holding back activity in the longer term,” he said.

On a positive note, while still elevated, input cost inflation has eased, he said.

Meanwhile, tax incentives to encourage renovation could help free up dozens of currently unused “above store” apartments in city centres, a trade body has said.

The Hardware Association of Ireland is calling for landlords to be given tax relief to enable them to let the properties.

A June report from the Collaborative Town Center Health Check group found that vacancy rates for Irish commercial properties are 80% for upper floors, almost 20 times the rate in mainland Europe.

Census data shows that half of all landlords in the country had net rental incomes below €10,000 in 2019, with 80% earning less than €20,000.