EBS Building Society says it has had to discourage many applications from first-time buyers who have good jobs but simply can't afford a house at current prices.

Excessive price increases, of more than 25 per cent in some parts of Dublin, have put first-time buyers under pressure, with many now priced out of the market altogether, the society says.

Although the housing market presents a rosy picture, high demand and buoyant lending are hiding difficulties in some sectors, EBS head of lending Mr Martin Walsh says.

Secondhand sales are showing little volume growth, partly because of restricted supply and also because of stamp duty and the high cost of moving. While new housing completions are well up, supply is still not meeting demand, especially as investors are taking a bigger share of this market, EBS says.

The society warns that the current boom and the increased levels of debt associated with it could lead to unwelcome inflationary pressure.

"The market has entered a phase in which demand and price increases may not be supported by long-term fundamentals," it warns.

EBS says possible solutions to the problems in the housing market include increasing the flexibility of supply.

It also suggests considering compulsory purchase orders for housing and proposes changing stamp duty policy to apply it evenly.

The society notes that a larger rented sector would also help meet surges in demand and put less pressure on first-time buyers to `get on the ladder'.

It recommends a review of tax breaks and other incentives while it believes the development of a long-term fixed interest rate culture would reduce swings in affordability. But the society says that price controls are not an option as they have been tried before and failed while lending control should also be ruled out although prudent lending by institutions is essential.

(see also page 13)