Just over 26% of the houses and apartments bought in the Irish property market over the past six years were bought as second homes, holiday homes or investments, according to an analysis of the property market by AIB Global Treasury.
That has helped fuel the huge demand for property which has pushed the construction of new houses to an expected record output of 70,000 units this year.
But AIB believes this is too high, based on long-term estimates of demand. The bank's report says this is likely to hit the market for holiday homes, resulting in an increasing number of vacant investment properties.
AIB says that despite regular speculation about the risk of a crash, the Irish housing market exhibits none of the signs of a bubble about to burst.
The bank is expecting a moderate decline in overall house price inflation, which could slow to around 7% by the end of the year. Today's report says that housing supply is at very high levels, and while the housing market has seen a buoyant start to the year, the strong supply is expected to exert some downward pressure on house price inflation.
'However prices are unlikely to crash and the risk of negative equity on any meaningful or material scale is small,' the report adds.
AIB says there is a level of pent up demand for housing from individuals who are currently priced out of the market. Either a meaningful fall in price, or a large gain in disposable income, or a shift towards lower cost housing could be the key to unlocking this demand.
AIB says the current level of demand, where output is running at 65,000 to 70,000 units a year, is unlikely to be sustained. AIB says it has developed a model which sees housing demand running at about 62,000 a year until 2006, before easing back to 52,000 until 2011.
