Basically, buyers can't afford homes based on how much money they can borrow

This week the Organisation for Economic Co-operation and Development (OECD) issued a number of warnings to Irish policymakers.

The first two are pretty obvious and non-controversial. The first risk identified is that posed to the wellbeing of the economy from a disorderly Brexit. It warned that such an eventuality could plunge the Irish economy into a recession.

Not exactly a mind-blowing conclusion in a week when Simon Coveney warned that the chances of a disorderly Brexit are currently as high as they have been since the momentous vote almost three years ago. It is hard to argue with that.

The second warning is that changes in the international corporation tax regime could affect foreign direct investment flows, which - surprise, surprise - would pose a significant risk for Ireland.

The third warning is a little bit more controversial; namely that the property market could be laying the foundations for another boom and bust cycle.

The OECD noted that over one half of the commercial property investment in Ireland is accounted for by foreign investors who obtain their funding outside of the Irish banking system.

While it is good that the Irish property market is not being driven by domestic credit, the fact is that regardless of where the credit emanates from, too much credit is dangerous and does pose risks emanating from the opening up of new channels for the transmission of external shocks.

What this is really saying is that in the event of some external shock, the credit-driven nature of the commercial property market does pose a potential risk of a material correction.

The international think-tank also pointed out that while property prices have moderated in recent times, they remain high. The narrative concerning this moderation in residential property prices was given further credence this week with the release of the CSO's residential property price index for March.

In the year to March, national average house prices increased by 3.9%. This is the lowest annual growth rate since August 2013. In Dublin, average prices increased by 1.2% in the year to March, which is the lowest annual growth rate since November 2012.

Outside of Dublin, prices increased at an annual rate of 6.8% in March, which is the lowest annual growth rate since April 2014. However, while moderating, house prices outside of Dublin have not experienced any decline in recent months. Housing outside of Dublin is quite simply more affordable.

The overall message is that the Irish housing market is undoubtedly moderating. Anecdotally, this is fairly obvious, as properties now seem to be taking longer to shift and sale prices in many instances appear to be lower than initial asking prices. This is particularly true in Dublin and is a very welcome development, as rapidly escalating house prices are not in the best interests of the greater good and undermine living standards and competitiveness.

The only real potential downside is that supply may be damaged as the economics of house building come under pressure, because we can be pretty certain that the cost of build, and particularly the labour cost component in an economy approaching full employment, will not be coming down anytime soon.

The moderation in house prices is not due to supply catching up with demand, although the number of new dwelling completions in the first quarter was 23.2% up on the equivalent period last year.

The real issue is that the current level of prices, when combined with the Central Bank’s prudent lending restrictions, is undermining affordability.

Basically, in many cases, potential house purchasers are unable to afford current price levels based on the amount of money they can borrow. It is probable that this situation will worsen as the year progresses, as the banks will most likely use up the flexibility that they have to grant higher loan-to-value mortgages in the early part of the year.

Meanwhile, the imperative is to continue to do whatever it takes to drive housing supply of the right type in the areas where the demand really exists.

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