The increase in the lower rate of VAT is a "seriously retrograde step" and will add to the cost of new housing, the Construction Industry Federation (CIF) said.
Reacting to the Budget, the Federation said increased mortgage relief for first-time buyers is "very welcome". "This relief however, will be offset by the increased VAT rate for new homes which will raise the price of an average €200,000 home by close to €2,000."
"This Budget hits all sectors of the business community including the construction sector extremely hard.
"The construction industry will suffer from changes to capital allowances which will hit hotel investment in particular. The stamp duty changes to non residential building transactions will increase substantially the cost of conveyances and will impact negatively on the property investment market generally.
"The combined impact of the Budget day measures will be negative on investment, output and employment," the CIF added in a statement.
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