Uisce Éireann can currently supply 35,000 new homes with water a year over the next five years, the head of the water utility has said.
Niall Gleeson said discussions are taking place over additional funding, up to an additional €1.7 billion, to supply around 50,500 new homes a year with water.
"That €1.7bn needs to be ringfenced for growth programmes," he told RTÉ's This Week.
Planned housing expansion would not be possible without the additional funding, he added.
"We produce what we call the capacity register. It's a register of all the towns and cities around the country and what their capacities are, where there is capacity. So we're encouraging developers, and people who want to build to go into those areas where we're 'green'.
"We have a colour-coding system, green, amber and red, and where we're red, we just don't have capacity. We may have a plan in place. We might be upgrading the plant. It could be three to five years away from going green again.
"We're encouraging people, first of all, to invest in the areas where we have capacity... we have said no to certain areas.
"We approved, 38,000 units this year and we rejected about 200 to 300 - it's not a huge number," he added.
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Mr Gleeson also warned that Uisce Éireann does not have the capacity to supply large new industries with water in the greater Dublin area.
He said the water utility "would struggle" to supply a large pharmaceutical plant with enough water to meet its needs.
He said: "We would struggle in the GDA (greater Dublin area) to have a large pharmaceutical plant joining the water network".
He added that the current system is "very stretched".
"About 600 million litres of clean water is generated in Dublin every day, but people often consume 620 million litres in a single day, so capacity has to be increased overnight."
Mr Gleeson said Uisce Éireann tries to reserve capacity for the growth of housing.
Asked about problems with water discolouration in Cork, Mr Gleeson said that there is a sediment issue with water pipes, but once the water is flushed and clear, it is perfectly safe to drink.
He said that in the next six months, the incidents would be reduced due to improvement work.
"We know it's very frustrating for the people down there…it has taken us far too long to resolve this issue.
"So we do apologise to the people down there living with this situation. We have a number of projects going on, we have a task force dedicated to Cork.
"We are flushing as much as we can. We've got 300km of cold cast iron pipes down there and there is some sediment coming off those pipes," Mr Gleeson added.
