Private housing output is set to fall over the next two years as land shortages take their toll, according to the latest forecast from market analyst Experian.

Experian predicts that new-build private housing output will drop 1% this year, compared with its “no change” assessment in December. Output in the sector is forecast to drop a further 3% next year, compared with the 2% rise previously predicted.

Largely as a result of its adjusted housing predictions Experian has revised its forecasts for construction output for this year. This is expected to grow 1.8% compared with a previous estimate of 2.5%. Experian expects there to be 2.5% growth next year, and 2.7% in 2009.

In its report Experian says: “Housing starts increased in recent years owing to higher-density construction, but there is evidence to suggest that densities have peaked, and that the number of units started annually is likely to fall over the next couple of years.”

However, it notes that output might rise in 2009 when planning reforms designed to make it easier to develop on greenfield land start to have an effect.

Experian says private housing repair and maintenance is also set to decline this year, following a weak first quarter and mixed housing market indicators, but that it should subsequently pick up because of an expected increase in consumer spending.

Public sector housing output is forecast to grow 15% this year, and by a further 5% next as the supply of affordable housing remains a top political priority. Experian said this could rise further after the government’s announcement this week of £3bn in extra funding for social housing.

However, the report says that despite the Decent Homes programme, the figure for public housing repair, maintenance and improvement last year was £6.5bn, 13 times lower in real terms than in 1997.

The report says a hard landing in the housing market is “unlikely” but still a risk as speculative investment might create a “bubble” that could lead to short-term price falls if it bursts.

Commercial sector activity is likely to be the main engine of growth over the next two years. Private commercial output is forecast to increase 10% this year and 8% next.

Overall, growth in construction output by 2009 is expected to increase at a similar rate to GDP (see graph).