Location, location, location may be the traditional mantra of the housing market but in the current boom, supply is the issue on most people's minds. Four years of rising prices have triggered fears that the private housing market may be overheating and tackling a shortage of building land is seen as the key to righting this imbalance between supply and demand.

Demand for housing, particularly in Dublin, has soared as the economy goes from strength to strength, interest rates remain low and employment rises.

Demographic trends have also played their part in pushing the average price of a new house in Dublin to £94,375 in the second quarter of 1997, a 50 per cent jump on the price three years earlier.

Ireland has been transformed from a society with a net outflow of 20,000 people in 1990 to one with a net inflow of 15,000 this year while changing attitudes to household formation are also evident.

But the rapid growth of demand has not been matched by the supply of housing, resulting in spiralling prices and fears that house price inflation could spill over into the rest of the economy. There is also growing concern about the plight of first-time buyers who find themselves increasingly squeezed out of a market which estate agents expect to grow by 25 to 30 per cent in Dublin this year.

"We are concerned that the bubble is going to burst," one market observer said. "The question is how to deal with it."

The Government, alerted by the growing concern, has commissioned economic consultants, Peter Bacon Associates, to study the factors underlying the recent increases in house prices, particularly in the Dublin area.

Most market observers believe that supply is the main problem.

Estate agents Sherry FitzGerald says there are only 3,200 acres of land zoned for residential purposes in Dublin, suggesting a three to five-year supply of building land. But not all of this land is serviced or accessible.

Most in the industry say the Government must urgently provide more zoned and serviced land if it is to have any success in cooling the housing market. But some say more fundamental issues need to be tackled in the whole area of zoning, planning and land supply.

"Because of the way the (rezoning) process operates, it presents two kinds of problem for local authorities," says Mr Martin Walsh, head of lending at EBS Building Society. "The first, and recently most publicised, is the association in the public mind of rezoning with corruption and vast profits for favoured individuals.

"The second, probably more serious from the point of view of supply, is the cost to the local authority and taxpayers of servicing zoned land," he says.

He believes that rezoned land should be acquired by the local authority by compulsory purchase order, at a small premium over its previous use value, and then sold to builders by way of auction or tender. Any surplus should be used for infrastructure costs, Mr Walsh says. Planning density, particularly in inner-city areas, is another issue that most would like to see reviewed.

Higher density building in Dublin, for example, would put a halt to the city's creeping invasion of the neighbouring counties of Meath, Wicklow and Kildare and make maximum use of the infrastructure already available.

"If we don't address the density issues, Dublin will expand to include the `suburbs' of Balbriggan, Naas and Greystones," Sherry FitzGerald says.

Creative design means higher density housing need not be out of character with the environment, exponents say. It would be appropriate in areas such as Dublin's docklands where the necessary infrastructure is already in place, they say.

But if rezoning and planning are the most pressing problems facing the Government, there is also plenty it can do on the taxation side although opinion is far from uniform on what changes are desirable in this area.

Some economists would like to see all tax distortions removed from the system and believe that the current environment provides an ideal opportunity to get rid of subsidies like the first-time buyers' grant and mortgage interest relief. Others believe subsidies like the first-time buyers' grant need to be rethought rather than abolished and such buyers should be assisted by way of tax relief or direct income subsidy rather than grants.

The Director of Consumer Affairs, Mr William Fagan, says the first-time buyers' grant fails to help those for whom it was intended and is instead assumed into the pricing chain.

"There is a need to design incentives in such a fashion that the person who should benefit does benefit and it's not going into the pocket of someone else," he says.

Tax breaks to encourage investment in property also need to be examined and those with money to invest should perhaps be encouraged to look at other alternatives such as the stock market, economists say.

Not surprisingly, the industry itself is keen to hang onto the tax incentives which encourage people to buy while it would like to see the levies abolished.

The Institute of Auctioneers and Valuers (IAVI) believes the decision to increase stamp duty on residential property over £150,000 reduced supply further by reducing property mobility as people sought to avoid high transaction costs.

Suggestions for helping the struggling first-time buyer include a "shared ownership" proposal under which the State or a financial institution would part-fund mortgages and part-own purchased property.

Mortgages of 30 years have also been suggested while some say the Government should look at how it could structure aids and incentives so builders will supply houses for first-time buyers subject to a cap on price.

But many market observers believe there may be fundamental changes afoot in the market and the high levels of house ownership enjoyed in the past may not be guaranteed for a future generation. In this context, new legislation in the rented sector, balancing security of tenure and fair market rents, should be considered, they say.