Here's the simple reason why London's property market is so insane right now

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The re development of Battersea Power Station's and it's chimneys continues on February 18, 2015 in London, England. As part of the extensive redevelopment of Battersea Power Station, the four iconic chimneys will be entirely rebuilt over the course of the next two years. The regeneration of the 42-acre Battersea Power Station site will see the construction of over 1,300 homes, a 160 room hotel and 350,000 sq ft. of retail and restaurant space. (Photo by )

Dan Kitwood/Getty Images

London has a chronic undersupply of housing and new developments like Battersea Power Station cater for the already well-served luxury market.

The average price of a London property jumped 9.2% last year to a huge £481,820, according to the Land Registry.

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But what's behind the insane price rises? A lot has been made of the influx of foreign money, with David Cameron saying on Tuesday he's worried about London's housing market becoming a haven for dodgy money.

And schemes like Help to Buy, a government programme that lowers the price of a deposit on new builds, has helped get the property market moving.

But the simple truth is the price rise is largely down to a numbers game - there's more demand than supply.

London-only estate agent Foxtons made this clear in its half year results released Wednesday. Here's Foxtons (emphasis ours):

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The fundamentals of the London market remain attractive mainly due to the lack of supply of properties and ever increasing demand. Based on the latest London census figures, there was a cumulative population increase of circa 900,000 from 2005 to 2013 with only circa 175,000 new homes built. There are simply not enough properties to accommodate the increasing population in London.

Cranes have been springing up across London but the recent building boom looks unlikely to ease the squeeze. Most are high-end developments. Flats in the Battersea Power Station redevelopment, for example, sold for an average of £1 million - way beyond the reach of most average Londoners.

Many of these redevelopments or new towers are also being marketed to foreign investors as investment pieces before being offered to British buyers. The logic of investing in London property depends on keeping supply restricted to keep values rising.

People are now getting priced further and further out of London. Foxtons says sales volumes in Zones 1 & 2, the centre of London, declined in the first half of 2015. But sales in Zone 3 outward jumped by 9%. In Zone 3 Walthamstow, where Foxtons opened a new branch, sales jumped 18%.

Despite all this Foxtons today reported falling revenue and sales, blaming May's General Election for putting a dampener on activity. Revenue dropped 2.3% to £71.1 million ($110.9 million) and the volume of property sales slumped 10.9%.

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