House prices 'will continue rising for next three years'
Risk of a 'bubble' but increase in new homes to balance market
The cost of housing will keep climbing for the next three years, according to a leading economist.
But if there are continuous strong rises in the cost of buying homes over the next 18 months, there is the possibility of a 'property bubble' emerging, said Dr Kieran McQuinn, research professor at the Economic and Social Research Institute (ESRI).
His forecast of rising prices over the next three years was shared by economist Dr John McCartney, head of research at estate agents Savills Ireland.
Dr McCartney said the supply of new homes will increase sharply and the market should achieve a balance in 2021.
It is also believed among market observers that the disparity in regional house markets will continue and prices will depend on where in Ireland you are seeking to buy a property.
ESRI economist Dr McQuinn told the Sunday Independent that overall price increases are expected to continue for the coming three years.
"Our assessment is there isn't a bubble, but when prices are rising as fast as they are, and if they continue to rise very strongly over the next 18 months, then you might begin to get into bubble territory," he said.
"But I think the market prudential rules, to be fair, are keeping a certain degree of a lid on things and hopefully they will prevent a bubble from emerging in the market," said Dr McQuinn, who is adjunct professor of economics at University College, Cork.
"We would definitely see signs of supply increasing," he said.
"Mortgage credit is certainly increasing very strongly. So a lot of the underlying indicators in the market are suggesting that activity is really picking up," he added.
He said that, overall, there has been a strong growth in prices and rents after the big price falls after the economic crash. With the economy picking up, demand has risen sharply.
"The market appears to be coming back into near equilibrium in terms of prices," he said.
"You can explain the price levels on the basis of income levels in the economy and on the basis of interest rates."
Dr McCartney, of Savills, said around 35,000 new homes need to be built every year for the next five years.
He believed the Department of Housing, Planning and Local Government's estimate of 19,300 new homes built last year was excessive and the true figure may be closer to 14,000. He believes 20,000 new homes will be built this year.
"We are strongly undersupplied and as long as that situation continues, we will have rising prices and rising rents.
"House prices and rents will continue to rise for the next three years. The good news is that housing supply is moving in the right direction. The trend in supply is sharply upwards. We can look forward to the market becoming balanced possibly in 2021," he said.
He believes around 26,000 new homes will be built in 2019. The annual figure of new homes built in 2021 could reach 35,000, he said.
The price of new homes will rise by between 8pc and 9pc this year and between 4pc and 7pc next year, he added.