A LACK of residential land is artificially driving up house prices, squeezing many young borrowers out of the property market, a leading Irish lending institution said yesterday. The EBS building society said the Government should reduce house inflation by rezoning more land for new homes.

Speaking at the society's annual general meeting, the EBS chairman, Mr Henry J. O'Dwyer, said he shared the Central Bank's recently expressed worries about soaring house prices. Many EBS customers with good employment could no longer be confident of being able to buy their own homes, he said.

He deflected recent criticism of financial institutions, accused of lending more money than borrowers could reasonably afford, and denied that the EBS had changed its lending practices in any way.

"We do not believe that the lenders have been the prime movers in altering the balance between supply and demand. In fact it is the success of the economy, coupled with rigidities on the supply side, that have brought about the present mismatch and consequent house price rises," he said.

Mr O'Dwyer pointed out that, while there had been a surge in demand for automobiles paralleled to that for housing, this had not led to an increase in the price of cars.

He said commentators should also not forget that it is in the interests of some of the participants in the market to talk prices up by controlling the supply of houses.

In his address, Mr O'Dwyer made a spirited defence of the EBS's mutual status. While the job of a traditional chairman was, to announce increased profits, he said, he was delighted toe report that the society had reduced its surplus in 1996 by paying more to savers and charging less to borrowers.

"Our surplus before tax was £18.3 million. We paid £6.7 million in tax, leaving an after tax surplus of £11.6 million to be added to reserves," Mr O'Dwyer told the gathering. "This amount is sufficient to maintain the society's strong capital position.