If Mark Carney wants to understand what is going on in London’s housing market, he needs to speak to Gary Gosney.

Mr Gosney is the sales manager at Kremer Signs, Britain’s biggest manufacturer of estate agents’ advertising boards, and when the housing market picks up, he is one of the first people to know about it.

Kremer’s sales to top-end London agents held up well throughout the UK’s economic downturn as foreign buyers piled into the capital’s housing market – a trend which sparked multitudinous cries of “bubble!”.

But since the start of 2014 Mr Gosney has noticed a change: many more lower-priced homes are coming on to the market.

Estate agents that sell homes worth less than £500,000 have stepped up their orders of Mr Gosney’s signboards by 25 per cent year on year, he says – far faster than those that specialise in higher price brackets.

“Since the start of the year it’s really picked up with new agents coming on to the market, existing agents rebranding, and just much more demand for signs in general,” he says.

Mr Gosney’s experience reflects a wider trend. Until recently London’s housing market was dominated by multimillion-pound sales, many of which were to foreigners, and as a result house prices in London’s most expensive areas rose sharply. But in recent months activity in those districts has been slowing.

Transaction volumes have dropped by a quarter year on year in London’s priciest postcodes – places like Chelsea, Mayfair and Kensington – according to estate agent WA Ellis.

Estate agents working at the top end of the market cite several factors. The pound has been appreciating against many currencies in recent months, meaning London property does not look quite as cheap as it used to from the perspective of Singaporeans, New Yorkers or Parisians.

The government’s introduction of new property taxes has also deterred some foreign buyers.

With a general election coming up next spring, political rhetoric about housing is causing uncertainty – particularly the idea of a mansion tax, which two of Britain’s three biggest political parties support.

Michael Hodgson, chairman of London estate agents Douglas & Gordon, says: “With the election now less than a year away, political factors will weigh more and more on the thoughts of international buyers. Political sabre-rattling by parties against international owners who do not impact on the ballot boxes is not helpful.”

The momentum has shifted to those on moderate incomes and the cost of homes in cheaper areas – particularly those that are either central or have good transport links – has begun to rise strongly.

London house prices have risen 20 per cent year on year, according to the Office for National Statistics, and this is being driven by increasing activity in cheaper areas. The capital’s fastest-growing house prices are now in the gritty south London borough of Lambeth, where prices have risen 40 per cent in the past year, according to figures from researcher Acadata.

Richard Donnell, research director at data analysis firm Hometrack, says the market is now being driven by London’s aspiring professionals. “Prices are going ballistic in southeast and northeast London; it’s young people wanting to get on the housing ladder and get good value for money,” he says. “But in the outer London family market, still not much is happening.”

Is this a sign that a house price bubble triggered by wealthy foreigners is expanding into London’s local population?

One way of assessing this is affordability, and London homes are definitely becoming less affordable. The average London house is worth £400,404, according to Nationwide – more than eight times the average London first-time buyer’s earnings, a historic high.

The underlying drivers of this trend are not only sentiment but also economy and demography. London’s economy grew 11.1 per cent between 2009 and 2012 and its population is growing at a rate of 1.3 per cent or 108,000 people a year, according to ONS figures. It will exceed its previous pre-second world war population high by the end of 2014.

Price indices have presented wildly contrasting pictures of the health of the housing market – according to some the boom is back, while to others the slump staggers on

And while 52,000 new households are formed in London each year, according to the Department for Communities and Local Government, just 19,520 homes were built in 2013-14 – less than half of mayor Boris Johnson’s target of 42,000.

The result, according to Mr Johnson and his team, is less a bubble than a classic demand/supply imbalance, which is pushing prices relentlessly upwards. The answer is to build more homes, says his deputy mayor for housing, land and property, Rik Blakeway.

“With London’s population expected to reach 10m by 2030, demand for homes in the capital is soaring at an unprecedented rate,” Mr Blakeway says. “Over the last 30 years there has been a historic failure to build enough homes. In order to meet this growing demand we need to double the supply of new homes and get back to building at 1930s levels.”

Fears are growing that this housing shortage could hit London’s employers: half of all Londoners aged 18 to 34 expect to leave the city within the next 10 years, according to polling organisation BritainThinks.

Nearly three-quarters of Londoners who rent say they will never be able to afford to buy, BritainThinks found, while 77 per cent think London is becoming a place for the super-rich as people on normal incomes are being squeezed out.

Mr Carney himself has warned that housing is the greatest risk to the durability of Britain’s economic recovery, and the London Chamber of Commerce and Industry argues that house price rises are a threat to London’s competitiveness.

Price rises driven by fundamentals may be less of a bubble than the enthusiasm of a small number of very wealthy people, but they are more of a risk to the economy.