The building slump included a reduction in work on housing projects.
While the rate of decline was modest, it was still at the fastest level in almost 18 months.
Economic uncertainty, which is dampening demand, is being blamed.
The commercial sector bucked the trend, with activity there increasing for the fifth month running, and at the same solid pace as in May.
This indicates there has been an uptick in office development, following the post-pandemic slump.
The headline figure for the AIB Ireland Construction PMI dipped to 48.6, down from 49.2 in May and 52.4 in April. This means it remained well below the 50 no-change mark, indicating a continuing sharp reduction in total construction activity.
The findings will be an irritant for the Government, as it aims to build 41,000 new homes this year, a target that Housing Minister James Browne recently admitted is “not realistic”.
The Central Bank has reduced its forecast of delivery to 32,500 units.
Today’s News in 90 Seconds – July 8th
New construction orders did increase, for the fifth consecutive month, but the rate of expansion was modest.
Employment rose slightly in June, but at the slowest pace in four months.
Firms did report expanding their purchasing activity, and are using more sub-contractors.
Once again, however, the rates of expansion were down on May.
John Fahey, AIB’s senior economist, said the construction survey indicated a muted performance for the sector.
“Looking at some of the key indices in the report, the new orders component, which is regarded as a leading indicator, expanded for the fifth month in a row, with the pace of growth broadly similar to the previous month,” he said.
“The continued growth in new orders meant construction firms increased their staffing levels.
“Employment rose for a fourth straight month, albeit at a slower pace compared to May. Construction sector firms retained an optimistic outlook that activity levels would increase over the coming 12 months.
“An expected improvement in housing activity was cited as one of the reasons underpinning this perspective.”
Inflation in construction softened in June. While input costs rose again, it was at the slowest pace since January.
The rates charged by sub-contractors rose by the lowest amount in four months.
Suppliers’ delivery times lengthened further, amid reports of staff shortages at vendors.
The AIB Ireland Construction PMI survey is compiled by S&P Global from responses to questionnaires sent to a panel of about 150 construction firms.
The Government has pulled a number of policy levers in a bid to stimulate building activity.
Just under 6,000 new homes were completed in the first quarter of this year, a rise of only 2pc compared to the same three months of 2024, a year which ended with just 30,300 units being completed.
In the latest policy moves, proposals to reduce to the minimum size for apartments, and to remove mandatory requirements for communal space in new apartment developments, are going to the Cabinet today.
Mr Browne is also proposing to lift restrictions on the number of one-bedroom apartments that are allowed in a development. It currently stands at no more than 50pc.
He also wants to reduce the minimum permitted size of a studio apartment from the current 37 sq m to 32 sq m.
Along with changes to the rent caps, which are in train, the idea is to stimulate activity by the private sector, and lure investors back into apartment development.
Government sources have been quoted as saying that the changes being planned could result in a cost reduction of between €50,000 and €100,000 per unit.
Another change being considered is to give more powers to the Land Development Agency (LDA), which has been asking commercial semi-state bodies to hand over surplus land for housing.
Mr Browne recently told the Dáil that the Government is considering options to accelerate this process, including amending the LDA Act to allow the agency to issue a directive to a commercial state body to hand over a site.
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