House prices are as high as they can go and the cost of building homes must be driven down to help ease the housing crisis, a top economic think tank has warned.

The ESRI (Economic and Social Research Institute) said the recent modest decline in Dublin residential property prices demonstrated that the capital had reached the peak of what the market can bear.

“Price levels are as high, really, as they can possibly go, given affordability in the domestic economy,” research professor Kieran McQuinn told reporters at the launch of today’s ESRI economic review.

“The focus has to be on reducing the cost of supply of property in the Irish market, rather than trying to increase supply through continually increasing prices,” he said.

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His comments follow the Central Bank’s decision to keep a strict rein on lending rules to prevent any repeat of the easy credit-fuelled property boom that preceded the crash of the Celtic Tiger economy a decade ago.

Those rules – combined with exceptionally high property prices here versus European norms – have put home purchases beyond the reach of many, particularly in Dublin, where average prices have nearly doubled since 2012.

Today the median Dublin residential price is €368,000, including €527,000 in the Dún Laoghaire-Rathdown area.

While the ESRI noted that average wages have risen 3.5pc this year – reaching €780 a week, or €40,560 a year – this is nowhere near the level needed to secure a mortgage for many properties, particularly in cities and their suburbs.

Given that the Central Bank limits a typical first-time buyer to 3.5 times their income and requires a 10pc cash deposit, an average earner meeting these conditions could secure a mortgage only for property priced below €160,000. Median home prices are €268,000 in Galway and €242,000 in Cork.

Mr McQuinn said the answer was easy to identify – but complex to achieve.

“We need greater supply. Getting the cost of supply down is the crucial issue,” he said.

The Central Bank said earlier this week that Ireland needs to build at least 34,000 homes each year for the coming decade simply to meet demand. But the ESRI said construction may reach only 21,500 units this year and 24,750 next year.

Mr McQuinn said councils’ enforcement of annual levies on idle sites – totalling 7pc of assessed land value – should spur landowners to provide more land to builders and lower site costs.

Building firms should adopt new technologies and modernise design, planning and on-site practices, he said. But given the shortfall and inability of so many to qualify for mortgages, “demand pressure” could mean even higher rents.

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