House prices could drop by as much as 12% if housing output increases by 10,000 units a year.
That's according to a new ESRI paper that also found that increasing output would not necessarily lead to significant wage inflation in the construction sector.
It also pointed to question marks over whether the financial system in Ireland can provide the credit necessary to meet the demand for residential property.
Kieran McQuinn, Research Professor at the ESRI, says prices will not drop overnight:
"I suppose that if you do increase the supply of housing and keep everything else constant then house prices will fall. There's no doubt about that. But this is over quite a long period of time. It's not like that prices are going to suddenly fall very sharply, which is what happened in 2000. And now in 2010, because we, we went from a situation where we're building 85 90,000 Puranam at that stage, which was purely far too much."
