Are house prices in Ireland too low?

According to a study by the Irish central bank, house prices in Ireland are too low as they are below fair value.

While this may be true, the question is what is the driver that is going to cause house prices to return to fair value?

In the absence of this driver, there is no reason that house prices cannot decline significantly from where they are now.

As reported in an Irish Times article

IRISH HOUSE prices were undervalued by 12-26 per cent as of the end of last year, researchers at the Central Bank claimed yesterday. 

In a study entitled Why Are Irish House Prices Still Falling? two of the bank’s economists attributed the continued decline in house prices to a lack of investor confidence, negative future house-price expectations and an uncertain macroeconomic outlook. 

Additionally, “the requirement for substantial deleveraging within the Irish financial system and the associated issue of mortgage credit availability are also considered as significant reasons for the decline”, according to the report.... 

Responding to the report, chairman of the Consumers’ Association of Ireland, Michael Kilcoyne, said he would take anything the Central Bank had to say “with a pinch of salt”. Banking practices had caused houses to be overvalued in the first place, he added....

The bank’s researchers used four models to assess property prices. One model found prices were 26 per cent below what economic fundamentals in the economy would warrant.
Two other models found prices were undervalued by 16-18 per cent. A fourth model suggested they were undervalued by 12 per cent. 

The Central Bank researchers analysed the period up to the final quarter of last year. More recent figures show the decline in prices continued into 2012.

An Irish Independent article on the study observed

A CENTRAL Bank report claims that Irish home values have been "overcorrected" by between 12 and 26pc. 

A number of factors have combined to cause the continued fall in prices, according to the study, with consumer confidence being the single biggest factor. 

But property prices could rise suddenly and significantly if the causes of the undershooting in prices were removed. 

States the report: “Investor conidence, a key driver in a buoyant market, has been critically impaired and will likely take some time to recover”. 

According to RTE News, the report claims that - as of the third quarter of last year - the overall drop in Irish housing prices was second only to the 1990s housing crisis in Japan. 

Authors Gerard Kennedy and Kieran McQuinn, however, note that Ireland’s housing collapse has happened much quicker than that of Japan. 

Irish house prices have now been in decline for 18 quarters, compared to Japan where prices fell for 82 consecutive quarter.

As demonstrated by Japan, house prices can continue to decline for over 20 years!

This occurred while Japanese policymakers were pursuing the Japanese model for handling a bank solvency led financial crisis.  The same model that Ireland is currently pursuing.

Is there any reason to believe that the Irish experience will be any different from Japan's experience and that house prices will not continue to decline for the next 16 years?