There was a time when Hackney, in East London, was considered the somewhat “edgy” borough to live in — with its relatively low cost of living it drew artists, musicians, and others seeking a central refuge from prime London’s pricey housing market. No longer.

Over the past nine years, and despite the housing market crash in 2007, the borough has seen property prices soar at the fourth fastest rate in London — up 88.7 per cent — according to research by real estate agents Savills. Only Kensington and Chelsea, the City of Westminster, and Hammersmith and Fulham — boroughs that are home to such internationally well-established areas as Mayfair and Knightsbridge — surpassed it. A three-bed penthouse on trendy Shoreditch High Street could cost you around £3.75 million (₹38.3 crore), while a four-bedroom flat further north near fast-gentrifying Victoria Park could set you back £1.5 million (₹15.3 crore). It’s been apparent for some time now that despite tough lending conditions, and government spending cuts, London’s property market has begun racing forward once again.

London house prices rose on average by 11 per cent in 2013, and are set to rise by 7 per cent on average in each of the next five years, according to a report published by the Ernst and Young Item Club on Monday. The average price of a house in London could reach £600,000 (₹6.1 crore), it said, warning that the capital’s housing market was beginning to show “bubble like conditions.”

Call for action

“London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern,” warned Andrew Goodwin, senior economic advisor to the Item Club.

And as prices rise, there have been increasing calls for government action, in the face of mounting evidence that London, and its suburbs, have become increasingly unaffordable. According to a report published last week by Tom Copley, a member of the London Assembly, over a fifth of Londoners spend more than half their salaries on housing. Charities have warned that a mix of rising housing costs (soaring house prices have also impacted the rental markets) and cuts in welfare benefits have pushed a record number of homelessness.

However, the solution is proving particularly divisive. While some have attacked “Help to Buy” a government scheme that helps people onto the property market, others have argued it’s foreign investment piling into the top of the market that is at fault.

Civitas, a think tank, is now calling for limits to be placed on foreign investors, similar to those already in place in Australia, which require them to go through the Foreign Investment Review Board, and only as long as their investment creates new housing stock. “The UK property market is being used as an investment vehicle for the global super rich while hundreds of thousands of young residents are being priced out of the market and rents are eating into more and more of people’s salaries,” it said in a report published on Monday.

However, others argue that it will do little to impact the market outside prime central London. In areas such as Fulham, which saw the third fastest rate of growth in London, overseas investors comprise just around a fifth of the market, against over 50 per cent in central London, says Lucian Cook, head of residential property research at Savills, who argues that foreign investors could prove essential in creating an affordable rental market in the capital.

“Any limits on foreign investors aren’t going to get to the heart of the problem.”