Irish house prices are around 17 per cent higher than levels suggested by economic fundamentals, according to new research from the Economic and Social Research Institute (ESRI).
The study examined residential property prices against factors including household incomes, interest rates and demographics and found a “significant degree of overvaluation” in the Irish housing market.
The estimated 17 per cent figure represents an increase on the ESRI’s previous assessment in 2024, indicating that the gap between house prices and underlying economic fundamentals has continued to widen.
However, researchers stressed that current conditions are significantly different to those seen in the years preceding the financial crisis.
Overvaluation peaked at more than 40 per cent in 2006, when rising property prices were accompanied by rapid credit growth, high levels of household borrowing and looser lending standards.
The ESRI said those conditions are not present to the same extent today, with indicators of household debt and credit remaining well below their pre-financial crisis peaks.
Instead, researchers said the current situation primarily reflects an affordability problem and structural imbalances in housing supply.
House prices have increased more rapidly than incomes, while higher mortgage interest rates have also affected affordability and the supply of new homes has not kept pace with demand.
The research found that middle-income households are experiencing the greatest impact, with the ratio between house prices and incomes furthest above its long-term average among this group.
“Our analysis shows that Irish house prices are significantly above what economic fundamentals would suggest, driven by prices rising faster than incomes and higher mortgage rates, with middle-income households bearing the greatest burden,” report author Paul Egan said.
The ESRI said the level of overvaluation warrants continued monitoring but concluded that current conditions are more consistent with structural problems in housing supply than with the credit-driven property price growth experienced before the financial crisis.
