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* Prime Dublin house price rises of 12 pct driving recovery
* Lack of supply set to see sharp urban price rises continue
* Housing starts at record low, building sector reeling
* Ill-planned boom leaves estates outside Dublin empty
By Padraic Halpin
DUBLIN, Aug 28 (Reuters) - Five years after a huge propertycrash devastated the Irish economy, prices are finallystabilising, but a booming urban market where supply is scarceand competition fierce is raising concerns about a new bubble inthe capital.
House prices quadrupled on a decade of easy credit duringthe boom years that earned Ireland the sobriquet Celtic Tiger,then fell by more than half from 2007, leading the country intoan EU/IMF bailout, a costly bank rescue and leaving almost onein five homeowners behind on their mortgage payments.
While prices began to rise again annually in June, someurban pockets are driving the recovery, with properties inDublin being sold for 8 percent more than a year ago and higherstill in affluent areas where 30-somethings outbid one another.
Having built the wrong stock in the wrong places during theboom - huge apartment complexes and out of town housing estates- there is now a big lack of supply in the capital and need fora battered construction sector to take the heat out of pricesthat some estate agents say are rising by 1 percent a month.
"There's an element of craziness creeping back into it wherepeople are getting frantic," said Scott, a 37-year-old father oftwo young children, after wading through the crowds to view afour-bedroom, semi-detached house in leafy south county Dublin.
"Friends of mine have bought and gotten into bidding wars.It feels like the olden days; it's kind of wrong."
It is families like Scott's, among the 305,000 householdsliving in rented accommodation - twice more than five years ago- that are primarily behind the surge in demand, having waitedpatiently for prices to find a floor.
But the dearth of supply means the level of transactions hasbarely risen, and with cash buyers snapping up every secondhome, only one in every two mortgages approved are being drawndown, keeping Ireland's stricken banks from reaping thebenefits.
Property consultants Savills Plc say 20 percent ofits buyers are from abroad - mainly Irish residents keen to movehome - piling even more pressure on frustrated domestic buyers.
In Dublin, the number of properties for sale has more thanhalved to just 3,000, research from Ireland's biggest propertywebsite Daft.ie shows, giving rise to year-on-year price hikesof over 12 percent in sought-after spots.
"If you've got rapidly rising prices, up by 10, 15 percentyear-on-year, something's wrong," said Daft chief economistRonan Lyons, who sees further annual rises of between 5 and 10percent as quite possible until more supply arrives.
"If you decide tomorrow to build, it's still going to be 18to 24 months before we actually get the supply, so if things arealready as bad as they are now, that's worrying."
LOW BASE
New builds are rising in Dublin, but from a very low base.Only 72 extra units were begun in the first five months of theyear, but even that was a 25 percent year-on-year jump.
House completions throughout Ireland also hit a record lowof just under 8,500 last year, down from an unsustainable 93,000in 2006 but just a third of the 23,000 built on average a yearduring the 1970s, when Ireland was a much poorer country.
In a country back in recession, conditions for a renewal inhouse building are poor - construction costs are rising andfinance for developers scarce. Finance Minister Michael Noonanis keen to use his upcoming budget to stimulate the sector, butmany of his colleagues want him to ease up on austerity instead.
The state-owned National Asset Management Agency (NAMA), the"bad bank" set up to rid banks of soured property loans, willalso have only a limited role to play as much of its stock ofresidential properties in need of completion are the apartmentblocks and "ghost estates" that litter the countryside.
Ireland's big builders have mixed views. The incoming chiefexecutive of CRH, one of the world's largest buildingmaterials providers, told Reuters last week it was vital "not tooverplay the Dublin hand", with demand small and sporadic.
The CEO of building and home improvement supplier Grafton, however, said it was time to start building again nowthe "green seeds" of recovery were sprouting.
There are some signs of life among smaller players, too,according to estate agents who have begun to field inquiriesinto Greenfield sites for the first time since the crash.
"Developers have suddenly realised that there is a shortageof good quality houses in certain areas, so there has been avery strong focus on people looking for development land," saidMichael Grehan, head of residential property at estate agentsSherry FitzGerald.
"How else do you get more supply out there? A lot depends onthe type of stock that comes into the market from the banks."
Lenders long-overdue response to the country's cripplingmortgage arrears crisis may hold the key to freeing up supply inthe short term. Repossessions are set to increase from nearnon-existent levels after changes to the law, while somestruggling homeowners may take up options to trade down.
How exactly this plays out and crucially whether it willunearth any prime Dublin supply is the big unknown.
Either way, Dublin needs targeted supply, and fast. A secondproperty bubble in a decade, albeit confined to a few particulardistricts, would be unthinkable as Ireland emerges from itsbailout.
"None of us want to go back to where it was; it's notsustainable," said Grehan.
