To an auctioneer riding London’s property boom, it was a “freehold single storey detached unit” in the up-and-coming suburb of Walthamstow. To the untrained eye, it looks like a large converted shed in east London. And it was up for auction for £70,000.

The tiny property, roughly the size of a garage, was set to go under the hammer this month as the latest example of the capital’s gravity-defying property market. The auction catalogue said the 15 sq metre building contained a “studio room/kitchenette, shower room/WC” and described it as an “investment”, currently being rented out for £193 a week, or more than £10,000 a year.

However, it has been withdrawn from sale after the Guardian raised questions about legal documents that failed to mention the existence of the building.

House prices in the borough have increased by more than 10% over the past year, and Walthamstow is increasingly desirable to young professionals. Property website Zoopla puts the average price of a one-bedroom home in the area at almost £270,000. At the same time rents have been rocketing, with figures suggesting that across England and Wales tenants are now paying more than ever before for their home, with sharp rises in London and the south-east driving up the average.

It is almost unheard of for freehold properties in the capital to come on the market for less than £100,000, so at £70,000 the guide price for the studio was eyecatching. An investor who paid that price and continued to let it at £10,000 would have achieved an annual return of 14% before fees and costs.

But the building itself was less attractive than the potential returns. It is halfway down a graffiti-lined alley between two rows of houses. Abandoned children’s toys, rubbish and dog excrement littered the passage, about 15 minutes’ walk from Walthamstow Central station. A pile of bricks and breezeblocks was sitting outside the outbuilding, which was set at the end of a garden behind a former shop.

Although there is a building there being lived in by a tenant on a standard tenancy, the legal documents for the sale described the property as “land” and said the sale was being made with vacant possession.

When the Guardian contacted the local council it said it would be looking at the property to check that it “has all relevant permissions and meets planning requirements”. A spokesperson added: “The council will always take appropriate action if a property is found to be unlawful.” And yesterday evening the auctioneer, Barnard Marcus, said it would no longer be including the property in next week’s auction. A spokeswoman said: “We pride ourselves on the accuracy of our descriptions and we have withdrawn this from sale while we carry out further investigations.” She said it might be entered into a later sale, but would not be described as somewhere to live.

Darren Johnson, London assembly member for the Green party, said the sale underlined the desperate need for rental reform. “The predicted rent is more than twice the cost of a mortgage on that glorified shed,” he said. “It illustrates how the broken housing market makes it easy for landlords to profiteer off people who have little choice but to take what they can get.”

New figures from lettings agents Your Move and Reeds Rains showed that the average rent in London increased by 7.4% in the 12 months to May, to reach £1,207 a month.

The figures, which are based on newly agreed lets, show that the annual pace of growth was even higher elsewhere in the south-east, with tenants paying 13% more than in May 2014 and facing average costs of £780 a month. Across England and Wales the cost of renting is up by 4.5% year-on-year at an average of £778. In October, the annual rise was just 1.5%.

Adrian Gill, director of Reeds Rains and Your Move, said: “Household incomes are now finally heading upwards, at least for the majority, so a good number of tenants can afford to pay more. That is starting to remove what had been the main factor holding back market rents.

“More fundamentally and over the longer term, the cost of a home comes down to a severely restricted stock of housing.”