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Irish housing output is set to decline further in next two years as the market continues to suffer the effects of oversupply.

A report from Goodbody Stockbrokers said house completions could fall as low as 12,000 this year and may drop below 10,000 in 2011.

"Tighter credit conditions continue to be an issue for both developers and potential homeowners, but there is also a need to curtail new supply until the vacant housing stock is reduced," said Dermot O'Leary, chief economist.

Oversupply is a particular problem in the midlands, the report said.

The predicted declines follow a 48 per cent drop to 26,820 units last year. Housing starts were down 63 per cent in the first 10 months of 2009, with commencements on larger developments down by 83 per cent.

In 2006, building completions were as high as 90,000 units in 2006.

However, 2009 figures were still ahead of European averages, with completions amounting to 5.8 units per 1000 of population, compared to a estimated European average of less than four per 1,000.