Early in the winter, after the trees had shed their last leaves, we noticed that the view from our upstairs bathroom window had subtly changed. The night sky on the southern horizon had a tower of lights that hadn't been there before. What could it be? The answer, we realised with some excitement, was the Shard, then nearing completion as the tallest building in Europe. We could see Europe's tallest building from our bathroom! And, despite the economic crash, it was still being built! The lights in the sky looked like an augury of the city's good fortune, a sign from the capitalist gods watching over a few of us that, in an otherwise blighted country, London would always do well.

The Shard stands across the Thames at London Bridge; only a few miles away, but a remote location for the north Londoner. Plainer evidence for the city's exceptionalism is nearer to hand. At the top of our street, the former headquarters of a children's charity is being turned into a "luxury collection" of 143 town houses and apartments, starting at £325,000 for a one-bedroom flat. The development is called The Loxfords, which has confounded local people because they knew the building only by the name of its previous owner, the National Children's Home (now renamed Action for Children and based in Watford). In fact, before the National Children's Home bought the Victorian villa in 1925, it was known as Loxford House; the developers no doubt came across the name in their title deeds and imagine they're giving back Highbury a piece of its history.

What have gone for good, however, are the staff who used to come to work here, and with their departure has come a further shrinkage of the idea that our locality might be a place to work as well as to eat, drink and sleep.

London is crazy for houses. Another local building became a heap of bricks and plaster this month as the site was cleared for yet more "luxury homes". The prejudice many of us in north Britain grew up with, that London "didn't make anything", is a lie: until the early postwar years, workers turned up every morning to make fountain-pen ink, radio sets, cathode ray tubes and Branson-sized balloons at factories that all lay within a half-mile radius of where I now live. Manufacturing moved out long ago, of course, but now the activities that took up the space it vacated are leaving, too – Pilates classes, jewellery workshops, theatrical rehearsal rooms.

Houses are where the money is to be made, and to be spent. The late-20th-century practice of house "renovation" or "restoration" was almost invented here in the borough of Islington, where for a time the cornice and the Victorian fireplace were valued above all else. Gentrification: we remember how the process went. The gentrifiers, seeing some aesthetic promise in a house they could just afford, would move in and make a few essential improvements. They might retile the roof and underpin the foundations, and almost certainly they would want to demolish the wall between the front parlour and the back kitchen to achieve that big, "knocked-through" effect in the living room. Ascot heaters would be thrown out as new boilers were plumbed in. Upstairs, in the only room deemed to be liveable, the gentrifying couple would sit in front of an electric fire with a takeaway chicken biryani, hoping that the mess and expense would be worth it.

None of that seems to happen now. In our neighbourhood, houses are eviscerated rather than done up. Hardboard screens go up from the pavement to the height of the first floor, labelled by a company that promises it is "improving the image of construction". Scaffolding reaches to the roof, there to support a ceiling of corrugated steel that will protect rooftop workers from the rain. Windows are boarded up; excavated clay travels between the basement and the skip on a moving belt; the work goes on for months, sometimes years. The biggest difference, however, is the absence of the owners. Now there are no couples shivering upstairs with plastic forks and takeaway food – perhaps they're rich enough to live elsewhere while their homes are made fit for kings, or perhaps the owner is a property company engaged in some speculative evisceration in the justifiable belief that London house prices are immune from all but the largest calamity.

To see that belief expressed most strikingly, you need to travel to central or west London – Mayfair, Kensington, Notting Hill – where houses are being expanded downwards, into the earth, to include two or three basements levels that might contain a tennis court or a swimming pool. "Iceberg houses" – more below the surface than above it – have become a peculiarly London phenomenon, according to Charlie Ellingworth, the director of a home-finder agency called Property Vision, because London is rare among metropolises in having most of its homes as houses rather than flats, and because the clay (unlike, say, Manhattan's rock) yields so easily to the digger. "The economics are compelling," Ellingworth writes in his blog, "when the cost of above-ground space in the best areas is well above £2,000 per sq ft and the cost of digging down is only £500 per sq ft."

Most of the money comes from overseas; foreign revolutions are the London house-seller's dream. In the words of another property specialist, Liam Bailey of Knight Frank, quoted in the Financial Times: "The wave of money flowing into London over the past three years has been supercharged by one key theme – political risk." The world's wealthy, especially in emerging markets, are nervous of unpredictable change. The UK is relatively stable, socially and politically, and has a respected and easily understood body of property law. London houses, therefore, are not only seen as homes, and possibly refuges, by wealthy families, they are also in Bailey's words "effectively triple-A-rated bond investments". The result is that "prime" London property – the top 5% by price – has increased in value by more than 40% in the past three years; the number of Greek buyers, to give some idea of motives, quadrupled in the same period. The Financial Times report, written by Ed Hammond, puts it nicely: the perceived security of a London house has turned the city "into an investment lagoon in a world beset by economic and political tempests".

Being "out of touch" is a ritual denunciation of the government, but perhaps it isn't any more out of touch than the city – a lagoon ruffled only occasionally by its natives – to which it belongs. The wonder is that anti-metropolitan anger has been slow to find effective expression. Lord Adonis calls for the House of Lords to be moved to Manchester, and describes London as an unsustainable amalgamation of Los Angeles, Washington and New York. George Galloway wins Bradford West. Scotland goes its own way. These may be just straws in the wind, with the gale still to come.