Construction started on 1,950 schemes worth £1.4bn between May and July compared to 2,450 projects with a value of £2.5bn during the previous quarter.
The fall spells an end to six months of growth in the private housing sector which is seen as one of the main hopes for pulling the industry out of the doldrums.
Glenigan economist James Abraham said: “Private housing had been a source of optimism as returning private sector confidence encouraged developers to invest in new work. The dip in the last three months highlights the fragility of the recovery.
“The latest Glenigan data comes fast on the heels of the sharp 9% jump in second quarter construction output recorded by ONS. ”
“Second quarter output has been buoyed by the earlier rise in project starts and industry efforts to make up time lost to bad weather at the start of the year.
“The weakening in new project starts over the last three months points to an easing in construction output growth during the second half of this year.”
The experts believe the drop is a temporary blip and private work levels will pick-up again towards the end of the year.
Abraham said: “While the decline in starts is not expected to continue to the end of 2010, the slowdown has diminished overall construction prospects”
Social housing has seen sharp falls and the outlook is gloomier for the public side of the market.
Abraham said: “New social housing projects have fallen sharply, with the three months to July over 40% down on a year ago.
“The shrinking pool of new work comes as the increase in government funds during the last financial year dry up. A recovery is not expected for the sector within the next two years.”
The value of non-residential construction project starts also fell. Despite a return to growth in retail construction, the Glenigan Non-Residential Index for July is 14% down on a year ago.
Abraham said: “Office and industrial project starts remain weak while community & amenity, health and education have suffered from government cuts”.
Civil engineering continues to be the industry bright spot with the Glenigan Civil Engineering Index for July 19% up on a year ago.
While the growth rate in the underlying value of utility projects fell, infrastructure project starts increased by a third.
Abraham said: “In particular growth was boosted by two railway projects in the South East of England with a combined value of £160m that started on site in June”.
Overall, the value of construction projects starting on site in the three months to July was 12% down on a year ago.
Looking ahead Abraham said: “The outcome of the comprehensive spending review will weigh heavily on public sector starts over the next two years.
“Despite the good flow of retail and hotel projects over the past few months, private non-residential activity has been a disappointment. Improved business confidence and lending conditions have been slow to lift industrial and office starts.
“Nevertheless, a number of stalled schemes are once again being taken forward and an increase in project starts is expected by the end of the year.”