Construction BUSINESS

New ESRI research analyses a number of demographic and economic factors to forecast trends in house prices. The research finds that over the period from 2017-2020, house prices could rise by 20% in real terms if projections for strong economic growth over the period are realised and if the slow rate of housing supply continues.

The research finds that Irish prices are broadly in line with the level suggested by current economic and demographic variables in the economy. Therefore, the analysis suggests that the Irish housing market is not overheating at present.

The analysis also compares Irish house prices with prices in other markets. A cross-country comparison of price-to-income ratios and price-to-rent ratios supports the finding that the housing market is not currently overvalued relative to the demographic and economic context.

Policy Implications

Continuing house price increases will pose certain competitiveness pressures for the economy. Therefore, given this forecast for strong price growth, government policies should focus on increasing supply.

Macroprudential policies should also not serve to increase housing demand, for example, by easing loan-to-value or loan-to-income restrictions.

Kieran McQuinn, Research Professor at the ESRI, comments: “As economic growth continues and the banking sector recovers, it will be critical to monitor credit provision to avoid fuelling house price inflation.”