Demand for housing is the only factor propping up the construction industry, according to a new report.

The report from construction cost management company Davis Langdon PKS says that outside of housing, the industry is facing a 14 per cent decline in volume this year.

And it says business in the private sector is even worse, with the office and commercial sector likely to see business decline 15 per cent. "The continuing strength in the construction of new houses is hiding a serious reduction in general construction and civil engineering," said Mr Michael Webb, managing director of Davis Langdon PKS.

He said the relative strength of the housing sector, which accounts for around half the capacity of the industry, would limit the overall decline of volumes in construction to 6 per cent by year-end.

Profit margins in the industry are falling as tender prices fall for the second year in a row. The report says that, following a 5 per cent fall in tender prices last year, the value of tenders has fallen by another 4-5 per cent so far this year. At the same time, labour and materials cost continue to rise, although at much slower levels than in recent years.

The Davis Langdon report says the new housing market continues to buck the trend with Homebond registrations up 5 per cent in the first quarter of 2003 and the industry on course to build another 50,000 homes this year. However, Mr Webb warns that, while it is unlikely to collapse, the housing market will stabilise in the future.

Planning permissions fell 15.6 per cent in the last quarter of 2002 and the first three months of this year has seen a further 11.6 per cent decline.

Confirming that the National Development Plan is well behind schedule, the report says the plus side of the delay is that it allows time for all sides to review the plan's priorities and how they can most effectively be funded.

Mr Webb urged the Government to consider using the National Pensions Reserve Fund to finance infrastructural projects.

He also said the State must look at borrowing for such capital projects, regardless of what the European Union might say.

"Investment in roads and transport is essential for our economic well-being," said Mr Webb. "Of equal if not more importance is investment in educational building at all levels at a time when our economy needs more and more fully educated workers."

He said the fall-off in spending on hospital and educational projects had exceeded even the 11 per cent laid down in the 2003 public capital programme.

In the first quarter, he said, Exchequer returns showed a 14 per cent decline in expenditure on such projects.