The 'empty nesters', whose children have grown up and left their homes, are using up valuable housing stock that remains largely unused.
Nama has advised the Government to encourage these parents to downsize to smaller homes.
However, it comes at a time when the market is moving against anyone looking to trade down. The new Central Bank mortgage deposit rules have pushed up demand for smaller, more affordable homes, while at the same time demand for pricier, larger homes has fallen.
It means anyone trading down from a larger home will likely pay over the odds for a smaller home, while getting little extra value out of selling their current home.
The move may also push the already surging price of smaller homes even higher if it brings more, cash-rich buyers into the market.
And Nama warned the Government of another looming Celtic Tiger-style bubble due to the housing shortage.
It said a lack of urgency by the State is stalling the development of much-needed housing units in the capital.
The bad bank made a series of drastic proposals aimed at tackling the country's housing crisis, including:
¦ reducing the VAT rate paid by builders and developers to stimulate the housing market;
¦ appointing a full-time independent advisor to assist the Government with issues surrounding the delivery of housing;
¦ implementing measures to provide infrastructure and aid construction.
Nama warned that further investment is desperately needed to stimulate growth in the construction sector and argued that an additional €1bn of housing activity would have the potential to create 10,000 jobs for builders and tradespeople.
Nama's recommendations are still under consideration by the Cabinet. Sources close to the Cabinet said the idea of moving elderly people and parents to smaller units is a good one, but they are unsure what incentives would be offered and how the scheme would be rolled out.
In documents seen by the Irish Independent, Nama said couples should be incentivised to leave the large homes where they raised their children.
"Many family homes are occupied by one or two persons, often elderly couples whose families have left," said Nama.
"In that context, consideration should be given to the introduction of incentives which would encourage 'downsizing' to smaller houses or apartments in such cases," it added.
Nama also criticised the Government's lack of urgency in addressing infrastructural shortcomings saying this is stalling development in Dublin. It also said that a temporary VAT reduction for builders from 13.5pc to 9pc for three years would help to create jobs and increase housing output.
"This could provide a significant incentive to developers to proceed with projects sooner rather than later," said Nama.
"Analysis of planning applications' data suggests that there is little prospect of a significant increase in supply in the near future.
"This suggests that the imbalance between supply and demand will deteriorate further before the market can respond adequately."
Tom Parlon, director general of the Construction Industry Federation, welcomed the idea of offering incentives to ageing parents to move: "If people can move from renting to buying, it ensures that rents remain affordable and that people have a choice," he said.
Meanwhile, the Irish Independent's annual house price guide shows the Central Bank's efforts to cool the Dublin property market have caused double digit "knock on" inflation in outlying counties.
Buyers struggling to meet strict deposit rules are now moving up to 80 miles outside Dublin to buy at lower prices.
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