The increase in house prices reflects the decreasing levels of supply in the housing market, according to the Construction Industry Federation (CIF). Over recent years, the number of new housing being built has reached record low levels and that is now starting to impact on the housing market.

This is leading to pressure on the level of available housing in certain parts of the country, particularly in urban centres.

"Housing stock levels are starting to decline, particularly in the larger urban centres such as Dublin, Cork and Galway," said CIF Director of Housing, Hubert Fitzpatrick. "When there are fewer houses available then there is more competition for those units which are for sale. That competition helps drive up the price. That is what we are starting to see in the latest CSO figures and in other indications coming from estate agents.

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"While for several years there was a glut of housing stock available throughout the country, in the urban centres that backlog of stock is now diminishing. House building levels are still decreasing. We are likely to see a further drop in the number of houses built in 2013. Approximately 7,500 units are likely to be built in 2013, which comes after 8,488 were built in 2012 and 10,480 in 2011. This is the lowest level of house completion on record.

"The ESRI estimates this country needs to be building 15,000 – 20,000 new units every year due to the country's demographic pressures. The current low level of house building activity is not sustainable at a time when our population is increasing. Population is expected to grow by 327,000 between 2011 and 2021.

"While the number of new house starts has slowly started to increase this will not be enough to take the pressure off the market. The latest CIF figures show that there was a 0.4% increase in new house starts between January and May of this year in comparison to the same period last year. While there has been a stronger increase in the urban areas of Dublin, Galway and Cork it will take significantly more building activity if there is to be sufficient supply.

"The reality is that there remain several factors which are hampering sustained, manageable house building. These include access to development finance, mortgage availability, regulatory costs including development levies and Part V social and affordable housing requirements. These issues will have to be grappled with if the level of house building that the market requires is to take place," Mr Fitzpatrick concluded.

(CD/JP)