Irish house prices are "overvalued" by around 15 per cent, according to the OECD's econometric model.
In a special report on the global property market accompanying today's broader economic outlook report, the OECD names Ireland, Spain and the United Kingdom as markets where property prices are seriously out of line with fundamentals.
But the think tank conceded that such models fail to capture many factors that are driving the Irish market.
The OECD compares the full price of owning a house including tax reliefs and interest foregone on other investments with the cost of renting. Using this price-to-rent ratio, buying a house in Ireland is 15.4 per more expensive than renting one, indicating a bubble.
However, the OECD cautions this indicator does not take into account inefficient zoning that affects the supply of residential units, demographics and the distortionary effects of property taxes all of which have had a significant impact on the Irish property market.
The OECD adds that higher disposable incomes can also raise housing demand, thereby increasing price levels. In particular, high rates of net migration, declines in the average size of households and increases in the proportion of the population of house-buying age will boost housing demand.
All of these factors are present in the Irish market and have been cited as reasons why despite soaring house prices, a soft landing is still possible.
Affordability as measured by the ability to service mortgage debt has either been relatively stable or has improved slightly in Ireland since the early 1990s and now stands at around its historic average of 30 per cent of household income.
Nevertheless the OECD's analysis of the effects of a housing crash make for sobering reading.
Of the 37 large upward phases in house prices recorded in OECD economies between 1970 and the mid-1990s, 24 ended in downturns in which anywhere from one-third to well over 100 per cent of the previous gains were wiped out and in many cases led to more widespread recessions.