House prices in Ireland will keep rising over the next three years, but the property market is not overheating, according to the Irish government’s leading think tank.

‘Prices are likely to rise by 20% by 2020’, the Economic and Social Research Institute (ESRI) said in a new report. The price surge it predicts is due to strong economic growth and the slow pace of house building. But it has dismissed suggestions the housing market is overheating.

The research finds that property prices in Ireland are broadly in line with the level suggested by current economic and demographic variables in the economy. “Therefore, the analysis suggests that the Irish housing market is not overheating at present,” the ESRI said.

However, the average price paid for a home was €266,000 in the year to September, the Central Statistics Office said recently. A rise of another 20% would see prices at close to €320,000.

The analysis also compares Irish house prices with prices in other markets. A cross-country comparison of price-to-income ratios and price-to-rent ratios supports the finding that the housing market is not currently overvalued relative to the demographic and economic context, according to the report’s author, Professor Kieran McQuinn.