House prices and rents will continue to rise "certainly over the next 12 months", the ESRI has warned, with the increases probably continuing for "two to three years".
Dr Kieran McQuinn, Research Professor at the Economic and Social Research Institute, said that population growth is likely to be revised upwards later this year.
He told the Committee on Budgetary Oversight that this will drive "structural demand" for housing, with demand exceeding supply "over the medium term".
While he expects that there will be more than 30,000 houses completed next year, demand will be for 35,000 to 40,000 units, "or possibly even higher".
"You still need a significant proportion of that increase to be social and affordable," he added, to help those lower-income households who do not qualify for State supports.
'Hard to see prices falling'
This imbalance between demand and supply will continue "for two to three years", Dr McQuinn warned.
"It's hard to see prices falling any time soon."
While we saw house prices "really jump last year", he expects them to continue to rise "at a slower pace".
However, if interest rates continue to rise and housing supply increases, he said that "you could see a scenario" where house prices begin to stabilise, but he emphasised that this is not the most likely scenario.
When Richard Boyd Barrett of Solidarity-PBP noted that if this did occur then demand would simply "land somewhere else", Dr McQuinn accepted that this could see "additional pressure on the rental side as a result".
Housing completions will fall this year to between 26,000 and 28,000, Dr McQuinn noted, but the "underlying trend" is upwards.
The ESRI believes that taxes which target land, such as the Site Valuation Tax, rather than taxing labour or capital, can serve as a "useful mechanism to control overheating pressures".
Dr McQuinn said these measures can "incentivise the use of land as much as possible" and root out land hoarding.
'Significant risk'
While the ESRI has "revised upwards a number of indicators" for the economy, it warned of a "significant risk of overheating", particularly given the "historically tight labour market".
Dr McQuinn said that demand for higher wages "may well intensify" and become the main driver of inflation.
While inflation was "notably lower in 2023 than had been expected at the end of 2022", the outlook remains.
"International trade will continue to grow robustly," Dr McQuinn said, and there will be "higher than anticipated growth in domestic demand".
Much of the domestic growth has been due to key multinationals - especially pharma and ICT, which leaves Ireland "vulnerable to a significant correction or decline in either sector".
