The picture is now clear - commercial property capital values have gone into reverse. Over periods of one, three, six or 12 months, capital value growth is negative.

Negative, that is, in all but one sector - residential housing.

In the year through September, UK house prices rose at an annualised rate of 14.6 per cent, up from 11.9 per cent in August, according to a survey from Nationwide Building Society. Halifax, Britain's biggest mortgage lender, put out its own survey showing house prices rising at a slower rate of 8.3 per cent - down from 10.9 per cent the month before - but rising, nevertheless.

With the UK economy facing its toughest economic environment in 10 years, what is going on? Of course, comparisons between commercial and residential property are difficult to make. While the former is almost always an investment decision, the latter primarily is not. Therefore, different demand characteristics attach to each, and there is limited purpose in laying the two side by side.

Nevertheless, the disparate performance of the two is worth examining.

One statistic, buried in a recent bulletin on the residential housing market from the property fund managers Baring Houston & Saunders (BH&S), is worthy of note. In 2000, only 166,000 new houses were built in Britain, the lowest peacetime rate since 1924.

"That struck us as being an amazing fact," says Peter Macpherson, head of investor relations at BH&S. The fund manager estimates that the number of houses built is 40,000 fewer than needed to replace existing stock and to serve new households.

Home-buyers, frantic to find a property they can afford, may sometimes miss this fundamental essence of the housing market. It is just that - a market driven by supply and demand. If supply is constricted while demand is growing, prices will rise. And nowhere has the rise in house prices been as painful - or as lucrative - as London. This point has not been wasted on organisations such as London First, a group that promotes inward investment in London. The lack of affordable housing is one of the main obstacles to London's economic growth, the group says.

"It's all well and good for politicians to talk (about) subsidising housing for nurses," says Judith Salomon, executive director. "Fundamentally, you have to increase the supply." Indeed, the figures show that pious hand-wringing by government ministers and successive increases in stamp duty have done almost nothing to dampen prices.

According to the Land Registry, the average price of a flat in Greater London, as of June 2001 was £178,191 sterling, as against a national average of £117,398 sterling. "If you are on an income below £35,000 , it's hard to find housing," Ms Salomon says.

Meanwhile, the demand side of the equation may have been distorted by the growth of the so-called buy-to-let investment market. This market, dominated by individual investors, has snapped up properties to rent.

Attracted by historically low mortgage rates and lenders prepared to finance up to 85 per cent of the purchase price, investors have entered this market in droves.

Data from the Council of Mortgage Lenders shows that the number of mortgages outstanding for buy-to-lets rose from 80,200 at the end of June 2000 to 130,700 a year later. Moreover, the number of new loans extended was nearly 50 per cent higher in the first half of 2001 than in the comparable period in 2000.

According to Richard Donnell, head of residential research at FPDSavills, the property consultants, investors have accounted for 15 per cent of all buyers of "non-new" properties in the past year.

In central London, "there have been on average 6,000 new properties put on the market each year for the past five years," Mr Donnell says. "Some 40 to 60 per cent of these are investments." With the equities markets still scary to enter and UK mortgage rates at their lowest levels in 40 years, London houses, as investments go, are, well, safe as houses.

Residential lettings agents say that although the number of buyers has fallen significantly, low mortgage rates mean that few homeowners are forced to sell. Prices may stagnate, but are unlikely to fall.

Is there nothing to take the steam out of house prices? One statistic provides an interesting clue. Global Resident, a website, and London Residential Research have compiled an index of supply and demand for rented property. At the higher end of the market - properties to let at £500 sterling per week and more - supply of homes outstrips demand by three to one.

Mr Donnell says that owners of properties that do not let are likely to cut the rent first, rather than sell. But with the significant cutbacks in London's financial services sector, many of the expatriates who would have wanted these properties could well be on their way back home.

If properties remain vacant for months at a time, investors may then become forced sellers.

Then, residential property may begin to perform more in line with the other members of its asset class.