Government spending in the third quarter of 2004 on schools and hospitals fell to its lowest level of growth in five years, research this week showed.

According to the RICS, overall growth in the construction industry fell in the third quarter, which was to be expected due to the usual summer slowdown.

It showed that the slowdown was most evident in the public sector and private housebuilding.

Louis Armstrong, RICS chief executive, said: “The tap of government spending has not been turned off but the flow has been reduced. We expect private-sector demand to pick up the slack and remain confident of a prosperous industry in the medium term.”

In its report, the RICS also backed the opinion that deputy prime minister John Prescott’s plans to build £60,000 homes for first-time buyers, announced at last week’s Labour Party Conference, were unrealistic.

The RICS Building Cost Information Service, using its database of 200 social housing projects over the past year, has calculated an average building cost of £80,000 per unit.

This figure, a third more than Prescott’s proposal, does not take into account design and project management costs, or developers’ profits. The RICS has estimated that the final figure is more likely to be about £100,000.