It's a balmy summer evening in Brixton, south London, and Jody Boehnert is pondering recent changes to the quiet street below from her flat in a rundown Victorian mansion block. In five days' time, police and bailiffs will evict her and several dozen householders, some of whom have squatted the property for more than 30 years.

"That block across the road was cleared last year and sold to private landlords," says Boehnert, until recently a PhD student. "The people living there now complain about the reggae from the music shops across the road. You ask them, 'Well, why did you move to Brixton?' They say, 'because of the tube'. It used to be really vibrant. Now it's a bit of a sterile space."

Ten miles north-east in Walthamstow, at the other end of the tube line, Anna, a charity worker, explains why she and her lawyer husband moved to the still-deprived area 18 months ago, when she was pregnant with their first child: "We were living in a one-bed flat in Islington. I was a bit reluctant to come here, but we could afford a three-bedroom house with a garden. We moved just in time – we paid £330,000 and it's probably worth more than £400,000 now."

In Belgravia, central London, Helene Oratore describes her family's life in their six-storey Regency house amid seemingly endless expansion work by neighbours seeking to eke out extra space now valued at £2,500 per sq ft.

At one point last year, a third of the 23 homes in her street were covered in scaffolding and hoardings: "Next door is digging out a double basement and the noise is endless. We get skip lorries beeping outside from 7am. My daughter had to study for her GCSEs wearing earplugs and headphones. "I accept some people will say, 'They've got money, why are they complaining?' But it doesn't matter how big or small your house is, if you can't enjoy living in it, then it's not really your home."

Despite their differing circumstances, all three are being buffeted by the same phenomenon. Known for decades as gentrification, it has now adopted such an accelerated, exaggerated form in London and a handful of other cities that experts are struggling for a new term. One touted alternative is "plutocratisation": when all but the very rich are forced out of the centre while those on modest incomes are exiled to the most remote, least desirable suburbs.

London, Britain's only example of what upmarket estate agents love to call a "world city", is at the centre of the phenomenon. But the ripple effect of spiralling house prices, static wages and tight credit is felt through much of the country. A report last month predicted a 42% rise in English house prices by 2020.

Deprivation



As significant is the long-term social and political impact: what happens to a country where the rich and powerful predominantly live in a place where they rarely see poverty and deprivation?

The migration of higher-income households into poorer areas is not new, but it has always brought mixed feelings. While some long-term residents eyed newcomers with suspicion, others opened businesses catering for them. And it is helping to lift some desperately poor areas out of deprivation.

While led by private investment, government often encouraged the process with schemes such as the popular home improvement grants of the 1960s and 70s, hoping to slow what seemed at the time the inexorable decline of the inner cities. But now, particularly in London, the reverse is the problem.

Danny Dorling, professor of human geography at Sheffield university, says the capital is arguably changing more quickly than at any time since the era of Charles Booth's pioneering "poverty maps" of late 19th century slums. "We've come nowhere near the densities we had in the Booth era, but we are, again, seeing rising overcrowding of children, and the multiple use of bedrooms," he said.

Now, regeneration and changing fashion have combined to hugely expand the proportion of London viewed as desirable, according to Yolande Barnes, head of research at estate agent Savills. For about a century, into the 1950s, "prime" London was limited to Belgravia, Knightsbridge and Mayfair. Now the "prime" area – average prices of £700,000 – covers a third of the capital.

London's perceived desirability has undergone a major change, Barnes says: "What's happened is London is becoming not just the national capital, but a major international capital, a world city. It's that change of status which makes the difference. It's like going from the first division to the Premier League."

All this combines to one, inescapable, effect: for all but the notably wealthy, life in London is increasingly hard to maintain. While average UK house prices remain below the pre-crash 2007 peak, in the capital they are already 5% or so higher. Rents are increasing faster, up an estimated 7% year on year.

"It's fair to call it a housing crisis," says Roger Harding, head of policy for Shelter. "It's been affecting people on low incomes for quite a while, but now it's really starting to bite with people on middling, even upper-middling incomes. You can be on a very good income, working very hard and saving very hard, and still find that home ownership is significantly out of reach."

Private rents are so outstripping wages, the charity says, it has seen a big increase in overcrowding as well as more desperate measures, the "beds in sheds" phenomenon.

Rents are driven up in part because fewer can afford to buy, as well as a decline in social housing. A microcosm of this is Elephant and Castle, a deprived but relatively central area in London where a massive regeneration scheme will see more than 1,000 council homes replaced by 71, with other affordable housing comprising just 25% in all.

At the vanguard are places such as Brixton and Walthamstow. Still hugely deprived by most definitions, – several of Brixton's districts rank among the poorest 10% in the country – they are nonetheless experiencing an influx of well-off arrivals, many themselves priced out of more gentrified nearby areas such as Clapham and Hackney.

The resultant changes often bring resentment, not least from the earlier waves of incomers, traditionally artists, café owners and the like, who fear being priced out of an area they helped revitalise.

Brixton is typical. After the 1981 riots many businesses fled, young people could not find any work and some properties were almost unsellable. Now its main street is thronged with well known retail names.

Though unevenly districbuted, the new prosperity affects everyone; for isntance, annual house price inflation now running at 10%. One target for tension has been a new branch of the estate agent Foxton's, a marker of new wealth. The outlet has already had "Yuppies out" painted on its window and was occupied briefly by anti-gentrification protesters.

A beacon of hope in changing times, however, is Brixton Village, a 1930s covered market earmarked for demolition only a few years ago as its core trade of West Indian grocers declined. Now it is a hub of cafes, restaurants and delis sufficiently large and thriving to merit its own section on the Time Out listings website. Next door a gated development of flats is being built on the site of a former arts centre. Marketing literature stresses their buy-to-let value.

Long-term residents appreciate the new vitality, but worry that rising rents are forcing out established traders. Surveying the £2.50 lattes and £8 burgers in the market where he spent his youth seeking out reggae records, Alex Wheatle, a teenage rioter in 1981 who grew up to become a novelist, has mixed feelings: "I've got to admit, it's nice to see such a variety of people enjoying Brixton. It's something I'd never have thought was imaginable when I was 17 or 18. But what do you do if you're on the minimum wage and looking for somewhere to have your lunch? Who do these shops really cater for? That's my concern."

If anything, Walthamstow is even more extreme. One of the most culturally diverse parts of London, it has for some years experienced a slow trickle of middle-class incomers drawn by streets of Victorian houses and a fast tube link to the centre, again bringing welcome new money and businesses to the area.

But the local property market has recently acquired, says one local man, "an atmosphere of hysteria". In another modern cultural touchstone, the increasing unaffordability has brought an internet parody of the film Downfall, with a subtitled Hitler railing against "too many cake shops" and potentially being forced to move to Leyton.

Surveying one of the dozen-plus estate agents clustered near Walthamstow's tube station, local Labour MP Stella Creasy views prices with incredulity: "Here's a first floor, one-bed flat, £1,000 a month. Start doing the maths. You're going to have to start earning £2,000-plus a month to have any kind of a debt-free month."

Creasy says her casework increasingly includes housing-related problems, with some families spending up to 70% of their income on rent, before bills: "I see a lot of people struggling, which is putting their kids at risk if they can't stay in the area. They can't stay at school, which makes it really unstable for them. You can see the pattern of factors."

The MP worries that the inevitable "churn" will harm Walthamstow on a fundamental level: "The mistake people make about London is that they think it's about people from different backgrounds not being able to get on. Actually, it's about people passing through. It takes time to build up relationships. When you've got pressures that push people to move on, or live in ways that mean they're just subsisting, that damages it."

Central to this is whether this reshaping of London becomes more than just a physical symbol of rising inequality and instead starts to entrench it politically.

Parallel to Paris



Dr Rowland Atkinson, an urban studies expert at York University, says it is no longer fanciful to equate London with Paris, with the poor banished to distant suburbs, or subsisting in the centre.

"The kind of city that results speaks of the kind of unfairness of the system. What worries me particularly is the capacity for very affluent people to navigate their way through urban space in ways that mean they don't even have to be confronted by any forms of poverty."

The rich and powerful, formerly at least, encountered people who were obviously different, he says: "That makes people behave slightly more morally, perhaps. What you see now is that the central city becomes a playground for the rich. It feels insulated from social difference and from poverty. The physical structure of the city thereby supports a kind of social politics which is absented of debates about how we accommodate people who are different from ourselves."

Back inside her flat, Boehnert is musing on her eviction. Her block is among a series owned by Lambeth council, but effectively abandoned to dilapidation more than 30 years ago. They were taken over and squatted by poor families or those with uncertain incomes, such as artists.

Boehnert says that she and other residents have tried over the years to interest Lambeth in a co-operative deal, which would make them pay rent. Lambeth insists it has no choice but to sell half of the six repossessed desirable blocks for more than £5m, with the others renovated for social tenants.

This will be the third time Boehnert has been priced out of a London neighbourhood. First it was Westbourne Grove, in west London, then Hackney, east London, and now Brixton. She has decided, reluctantly, to leave the city altogether."I don't want to leave Brixton," she says. "The forces of capitalism are squeezing out anything that doesn't focus on extracting as much surplus value as it can from people and the planet. If you're concerned with other things it's much less likely that you'll be allowed to stay in the heart of the city."

Where will it all end?



At the heart of all this lies two questions: what's causing the seemingly endless rise in London's property costs, and how long can it continue?

Analysts stress the importance of buy-to-let investors and overseas buyers, often in combination – many new developments are snapped up by foreign buyers. However, they stress that the totemic figure of the overseas tycoon acquiring a Belgravia mansion to keep empty is actually quite rare: of 35,000 recent "prime" purchases analysed by Savills, only 770 were non-primary residences for non-Britons.

According to Henry Pryor, a property consultant, London's property market is, technically, in a bubble as many people buy homes to rent out at yields well below the 6% net rate of return investment rule of thumb. He says: "They are openly betting that the property will increase in capital value. And that's a big assumption."

Others disagree, saying London's unique position makes its market trajectory more similar to cities such as New York and Paris rather than, say, Birmingham.

Professor Danny Dorling from Sheffield university argues that while the timing is uncertain the course of events is not: "We're in a bubble. It looks like a bubble, it feels like a bubble. It's the enormous bubble in the room. The great thing about bubbles is, it could be this autumn, it could be 20 years' time. It's like playing roulette: we haven't hit the nought yet but we know we will at some point."