Location and not house prices is the key to the current problems in the market, according to a leading economist. According to Jim O'Leary, chief economist at Davy Stockbrokers, there is not a real problem with house price affordability.

He bases his calculations on two people working on average incomes and admits that the results are very different for those not on average incomes or with only one working, or single people.

He says traditional measures which show houses are getting more unaffordable ignore the cuts in taxation over recent years which leave more money in people's pockets.

Many houses are still affordable to these people he says but they are not in locations where they may want to live and also involves significant additional costs in the amount of time and money spent travelling.

This is also likely to continue under the most recent Bacon report. A growing proportion of houses are envisaged being built in Kildare, Meath and Wicklow rather than Dublin, contributing significantly to urban sprawl.

Other commentators point out there is, in reality, very little choice of accommodation in Dublin. Buyers have a choice between modern apartments often in the city centre or three bedroom semidetached homes. The choice in a city like London would be far greater.

In addition, there are many older houses which are made into apartments and then sold off individually. One solution to the current problems would be for more of Dublin's older houses to be converted to apartments and then sold off on say 150-year leases, Mr O'Leary says.

According to him, there is considerable scope for house prices and interest rates to increase by more than is currently expected before affordability would become a problem. "That means our forecasts of house price inflation - a 15 per cent increase in new house prices this year, followed by increases of 10 per cent and 5 per cent respectively in 2001 and 2002 - are too cautious. "

According to Mr O'Leary, one possible explanation for the passions stirred up by the current state of the housing market relates to what he calls "financability".

The problem is that many first-time buyers may not be able to get a 90 per cent mortgage yet they would be able to fund it because of the lending criteria adopted by financial institutions.

For example, the national "average" married couple with a gross income in the of £37,260 (equivalent to the combined income of two teachers in their late 20s). They would qualify for a mortgage of just over £65,000 if the traditional income multiples were applied - 2.5 times the principal earner's salary plus once the secondary income. This is the equivalent of less than half the average price of a new house and would require the couple concerned to have a deposit of £70,000.

Even if the multiples applied were raised to 3.5 and 1.25, the maximum mortgage would be less than £90,000. This would still leave a large financing gap to be bridged. This sort of problem is sometimes solved by either the lending institution using other criteria or parents raising large amounts of equity in their own homes.

But there are still many people where neither of the solutions can work. As a result, the aspirations of would-be home-owners are dashed, either because they have to defer house purchase or because they end up buying an undesirable property.

And according to the Bacon report, that trend where new houses are built further and further from centres of employment is set to continue.