The Irish housing market will experience another strong year, due in part to Ryanair making Ireland a more accessible place to work, according to Irish Intercontinental Bank (IIB) chief economist Austin Hughes.

Presenting IIB Homeloans' annual analysis of the housing market, Mr Hughes said: "We conclude that the average increase in house prices in 2006 will be in the region of 8 per cent."

IIB expects interest rates to rise by a further three quarters of a percentage point this year, in line with yesterday's prediction from Bank of Ireland. It also expects positive influences to outweigh the effect of increased borrowing costs. Housebuilding activity is expected to remain at current levels - about 80,000 new homes - due to a combination of natural population increases and increased immigration.

Mr Hughes said increased capacity on air routes into Ireland from central Europe would impact on the property market.

"A 'Ryanair' effect on property prices has been noted in certain parts of France and Italy, following the introduction of low cost flights. It could be argued that cheaper access to Ireland is having a somewhat similar impact on Ireland," he said.

Mr Hughes said immigrants from EU accession states now accounted for 4 per cent of the labour force.

"These dwarf comparable figures for the UK, which show applications equivalent to 1.1 per cent of its workforce".

The IIB / ESRI Consumer Sentiment Index survey shows renewed strength for property demand towards the end of last year, and Mr Hughes said IIB "expects SSIAs to translate into as much as €10 billion of property spending by the middle of 2007".

He said rising demand was supported by a build up of housing wealth.

"Someone who bought an average Irish house in 2001, the year SSIAs were introduced, is likely to see its value increase by some €110,000 by the time the first SSIA's mature."