The Central Bank has underlined concerns about the rapid rise in house prices in Ireland.
In a review of risks to the Irish economy, the Central Bank noted that house price growth in Dublin is now higher than that recorded at the peak of the property bubble in 2006.
House price growth in Dublin has been above 23% since June. This is higher than the previous peak in house price growth of 22.5% - recorded in August 2006 - at the height of the housing bubble.
The Central Bank said that the identification and removal of barriers to further housing construction - either financial or planning - is urgently needed to increase the supply of housing in the market.
It also said the shortage of supply is the main factor driving prices up.
A survey for the Central Bank indicated that demand will outstrip supply in all parts of the country except the mid-west, border and western region next year.
In its latest Macro Financial Review, the Central Bank said such high rates of house price inflation can lead people to expect further rapid price rises, and cause prices to rise excessively. This increases risk in the financial system.
The Central Bank said Irish households remain highly indebted, leaving them vulnerable to economic shocks, falls in income and rises in interest rates.
While there has been a rise in the number of people in employment - which helps mortgage repayments - there has also been a rise in the number and value of mortgages in very long term arrears - classed as more than two years overdue.
It noted that the low inflation rate environment is not conducive to reducing debt burdens.
The bank also noted that international economic conditions have become less favourable since the publication of the last Macro-Financial Review in June, with a slowdown in the Euro Area, and less even growth in other advanced economies.
It warned that in the current low interest rate, low inflation environment increasing numbers of investors are searching for yield - a return on their money - and that this is increasing the risk of volatility in the financial system.
The Dublin office market and Government bonds - which have benefited from the inflow of foreign funds - are vulnerable to a change in investor sentiment if higher yield opportunities present elsewhere.
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