Economics: House prices in the Republic have risen by 35 per cent over the past two-and-a-half years, defying predictions by some of a collapse. This, however, is nothing compared to the UK, where prices have risen by 62 per cent over the same period, despite a much stronger background chorus warning of a correction.

The two markets, therefore, have seen very strong capital appreciation and have other similarities in terms of demand and affordability, although differences are also apparent on the supply side.

Crucially, they also differ in terms of the mechanism available to restore equilibrium, with implications for the likely evolution of prices over the next 18 months.

A key driver of any housing market on the demand side is income growth, in turn determined by wage trends and job creation.

The surge in Irish employment over the past decade is familiar to many and has far outstripped that of the other developed economies. The British labour market experience is also much better than most, and may be less well known.

There are currently some 30.3 million workforce jobs in the UK, a gain of three million over the past decade, or an average of 300,000 per year.

This has far outpaced the growth of the labour force, with the result that unemployment has tumbled - the unemployment rate currently stands at 4.8 per cent (on the international standard definition), down from more than 9 per cent in 1994.

Demand for housing is also affected by interest rates and again the Irish experience is unusual in that borrowers benefited from the decision to adopt the euro, which amounted to a regime shift in monetary policy, with the Republic swapping high interest rates for low Germanic style borrowing costs.

The decision by the incoming Labour government in the UK in 1997 to grant monetary independence to the Bank of England arguably also represents a regime shift because it delivered much lower and less volatile interest rates than had been experienced in the past.

Cheap money and strong economic fundamentals is a recipe for increased consumer borrowing and the UK, like the Republic, has seen a pronounced rise in mortgage debt over recent years. Indeed, household debt in the UK ended 2003 at more than 110 per cent of household income, against 95 per cent in the Republic.

Despite this however, affordability in both markets is not unduly onerous by historical standards. The annual cost of a new mortgage in the Republic in 2004 amounts to 29.5 per cent of average earnings, with the equivalent ratio in the UK amounting to 31.5 per cent.

The similarities between the two housing markets end there, however, as the supply experience has been very different.

The Irish housing boom started in 1993, when the annual supply of new housing units was fewer than 22,000, and the price explosion since then has brought forth a massive supply response - some 69,000 units were completed last year.

In the UK, in contrast, where house prices have risen by 150 per cent over the past decade, house completions in 2003 were 183,000 - virtually identical to the figure 10 years earlier.

So excess demand for housing resulted in strong price inflation in both markets, but the supply response in the Republic has been extraordinary, whereas in the UK it has been non-existent.

The responsiveness of supply here also provides a mechanism to restore equilibrium in the market and, although it has taken longer than many expected, that process is now well established, with house price inflation in 2004 slowing noticeably relative to recent years.

This is a relatively painless way to restore balance to the market and is a fortunate occurrence because demand is unlikely to decrease in any substantial way, particularly as the cost of borrowing in the Republic is unlikely to rise to levels that would seriously squash the market.

In the UK, however, the only mechanism available to restore equilibrium is to allow prices to rise or, if this proves unpalatable, to curb activity from the demand side, which in a booming economy means via interest rates.

The problem with this approach is that it is left to the monetary authorities to judge the level of rates required and history suggests that overkill is more common than not - the authorities panic and raise rates too much, provoking a rapid downturn in the economy and a crash in housing demand, rather than a gradual slowdown.

Fortunately, an independent Bank of England has a better chance of achieving a soft landing because it moves early in the cycle, so lowering the required peak for rates.

As a result, borrowers in the UK have already seen interest rates rise by 1.25 per cent in the past nine months and can look forward to another half point over the next six months.

With luck, however, this will be enough to dampen demand rather than crush it.

In the medium term, however, the problem of inadequate supply remains, so condemning UK borrowers to a cycle of housing booms followed by policy-induced corrections.