House prices could rise by 20% in real terms over the next three years because of strong economic growth and only a modest increase in house building.

The research by the Economic and Social Research Institute also suggests that Irish houses are not overvalued and the housing market is not yet overheating.

The research looks at the relationship between housing demand and key economic variables such as income levels, interest rates and demographics, which are often called the fundamentals.

Using several methods, and comparing the results to international data, the ESRI says fundamental house prices are in line with international standards

It said that by some measures, such as price to disposable income, housing affordability is on the low side.

Given the forecasts for continued strong economic growth, and only a slow increase in housing output, the ESRI thinks house prices will go up by another 20%.

If interest rates increase by one percentage point, house prices will rise by 14%.

It said the authorities should not do anything to make it easier for people to borrow more money, as this would drive up prices further, and it warned that an increase in credit supply from the banks could make the situation worse.

Read the ESRI report

Report shows rents reach record high

Karl Deeter, of Irish Mortgage Brokers, said investment from abroad is a significant contributing factor to rising house prices.

Speaking on RTÉ's Drivetime, Mr Deeter said that he fully agreed with findings by the ESRI.

He said believes that while the results are in line with international data, Ireland's average wage is skewed due to the country having a large number of low paid workers, and a relatively small number of people who are very highly paid.

Mr Deeter said if the comparison used the ratio of average house price to income, then house prices here could be 20-30% higher, a vista which Mr Deeter suggests shows that Ireland is "doing something that is working."

He said the ECB's zero interest rate is a "powerful force" encouraging people to put their money into property, many of whom are cash buyers.

He said the price to rent ratio is remaining consistent, which is showing that Ireland is not in a bubble.

"It is a factor that money is coming into the country from all over the world to buy real estate, half of our transactions there was no mortgage involved, and that is pushing prices up but because the price to rent ratio is staying fairly consistent it doesn't look like a bubble."

A rise in homelessness is inevitable as house and rent prices continue to rise, according to the Director of the Nevin Economic Research Institute.

Speaking on RTÉ's Morning Ireland, Tom Healy agreed that a 20% increase in house prices over the coming years was quite likely.

However, he said that this was not affordable for the average worker.

Mr Healy said there was "not a chance" that people on just above the national minimum wage could afford to buy anywhere in Dublin.

He said more competition in the housing market was needed and the State needed to take the lead and enter the market much more proactively.

In addition a long-term sustainable rental market needed to be developed, he said.

Meanwhile, a lecturer in Housing at DIT says there was no way that 18,000 houses would be built this year and it was more likely to be around 7,000 units.

Speaking on RTÉ’s Today with Sean O’Rourke, Lorcan Sirr said there was a huge labour shortage and house building would not recover in the next year, but would be a slow and steady progress.

He added that there was no relationship between the cost of construction and the sales price.

Mr Sirr said reducing construction costs would not necessarily translate into a cheaper house price for consumers.