Around £10bn will be lost from construction output over the next two years as workload drops by nearly 6%, before a return to modest growth in 2014.
The sharper than expected fall comes from a steeper decline of 1.3% in 2013, compared with an expectation of no growth three months ago.
Economists said the housing market was patchy with volume house builders delivering increased completions but smaller firms struggling with planning and finding finance.
Overall, private starts are anticipated to rise 3% this year before economic recovery boosts house building by an average of 10% per year over the next four years.
The large house builders are expected to continue to raise units, depending upon the success of NewBuy, and will be looking for margins of 10- 15%.
But the association forecasts that this rise will be offset by a 23% slump in public housing starts this year before falling a further 10% in 2013.
Even after a period of modest growth in the following years, public housing starts in 2016 are still expected to be 35% lower than in 2010.
