Irish property prices are 17% overvalued, a new report from the Economic and Social Research Institute (ESRI) has found.
The organisation measured house prices against a range of economic fundamentals including incomes, interest rates and demographics.
The ESRI said while there was "a significant degree of overvaluation" it added it was "materially lower, and structurally different in nature, than the levels observed prior to the global financial crisis".
It said the current situation represented an increase in the level of overvaluation since the most recent analysis using similar methods, which was published by the ESRI in December 2024.
The ESRI added: "Unlike the pre-crisis period, which was driven by excessive credit growth and loose lending standards, the current episode of overvaluation appears to be primarily an affordability issue."
It said house prices have risen faster than incomes, mortgage rates have increased, and not enough homes were being built to meet demand.
It added that household debt and the wider credit market remain well below the levels seen before the financial crisis which it said suggested the financial system is "considerably stronger" than before the financial crisis in 2008.
The report said the current valuation pressures warranted "continued monitoring".
It added that current conditions are better characterised as reflecting "structural imbalances in housing supply rather than the emergence of a systemic credit-driven housing bubble".
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The report's author, Paul Egan of the ESRI, said: "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."
Speaking on RTÉ's Morning Ireland programme, Dr Egan said that the issue is different to the price hikes in 2007 as that was caused by increased credit but now the issue is affordability and supply.
"It's structurally very different to the 2007-2008 period, which was mainly driven by credit expansion and loose ... standards. We don't have those conditions present today. What we have today is an affordability problem.
"So, basically overvaluation is being pushed up by a shortage of homes and rising mortgage costs. So, you basically have an increase in house prices that is going faster than people's incomes can sustain and maintain.
"So that's where you get this wedge between the actual and the implied house price."
Dr Egan added that "across the board, no matter what measure we use, there is definitely an element of overvaluation in there, in that the actual house prices are definitely above what the fundamentals say that prices should be".
CEO of Property District Carol Tallon said Ireland is "getting affordability wrong" and that it is not building the types of homes that people need.
Speaking on RTÉ's Today with David McCullagh, Ms Tallon said the findings are "a little lower than people would have expected".
"A reminder that this is just in relation to sales prices. If we were to layer the rental prices onto that, that figure would be significantly higher," she said.
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Ms Tallon said the ESRI is basing the report on fundamentals and focuses on demographics, which she said our data on demographics is "very out of date".
"A lot of the data we are drawing on is from the 2022-2023 census and resulting commentary," Ms Tallon said.
"We are not building the types of homes that people need," she added.
Ms Tallon said people should look at vacant and derelict homes in their area.
She also said people should speak to TDs ahead of the budget and that there needs to be more incentives to make buying second homes more attractive.
Ms Tallon added that reducing stamp duty on second hand homes or self builds could help address regional imbalances in new-build supply.
Labour Party TD Conor Sheehan said Ireland has one of the highest levels of public expenditure in terms of housing in the European Union but also has the poorest outcomes.
Speaking on RTÉ's Drivetime programme he said "those are the words of the government's own housing commission report that was published two and a half years ago that the government basically buried".
Mr Sheehan said the government needs to accept the problem is bigger than it is publicly acknowledging.
Speaking on the same programme, Economist David McWilliams has said the ESRI's findings are not surprising and it is clear that younger working people are suffering as a result of inflated property prices.
"You have to think of a set of policies where each individual department is talking to each other? So, the Department of Justice that's giving out visas is talking to the Department of Housing.
"If you're dictated by only foreign direct investment, if you're dictated by only the concerns of the corporate sector, who pays the bill? It's your young people, " he said.
