A UCD academic has argued that house prices could fall by up to 60% in real - or inflation-adjusted - terms in Ireland, if a pattern he has found in other countries is repeated.
Professor Morgan Kelly has looked at almost 40 house price booms and crashes on OECD economies since 1970. His study, published in the ESRI's quarterly economic commentary, shows that the larger the initial boom, the larger the subsequent bust.
Professor Kelly says that if this pattern held in Ireland, house prices adjusted for inflation could fall by 40% to 60%, with larger falls at the top and bottom of the market. But he adds that house price collapses are usually slow, so the most likely scenario is a drop of 6-7% in average selling prices over a period of eight or nine years.
Professor Kelly says reducing stamp duty will not change this. 'So long as there is a large stock of unsold houses and falling prices buyers have an incentive to wait for further decline to occur,' the report says.
He says the main reason to be worried about this is the effect on building activity, as house building currently account for 15% of the economy's GDP. Professor Kelly points out that 85% of building workers are Irish, and the effect of a slowdown on employment and government finances is likely to be substantial.
The Irish Home Builders' Association has rejected Professor's Kelly's report, claiming it is inaccurate and questioning his research methods.
The IHBA argues that Mr Kelly ignored economic, social and demographic factors that have driven, and which it believes will continue to drive, the Irish housing market.
