It seems too early say UK real estate values are approaching unsustainable levels, given the past half-decade of value deflation. But some see signs it is.

The story of land and real estate prices in the UK is Dickensian: the best of times in some places (central London, for example) with lingering reminders of the worst of times in the aftermath of the burst housing bubble of 2008 (Leeds, Bradford and Liverpool). In the latter, struggling local economies mean vacant properties and stalled housing sites.

The housing shortage may exist throughout the UK, but the economics of those different locations vary, according to a report from the Centre for Cities, Cities Outlook 2013 (the report is supported by the Local Government Association). The report largely argues for different and local approaches to the housing crisis, which is very real given the natural and immigration-driven population increase that has outpaced new house construction by a factor of two for the better part of 30 years.

The housing crash that was part of the larger worldwide financial crisis in 2008 certainly brought down real estate values everywhere. But true to the nature of housing values (as heavily documented in Cities Outlook 2013), the rebound has been spotty. London and the South East have recovered most robustly in 2013, says real estate advisor Savills. After disappointing reports in 2012 and the four years prior, house properties averaged across England and Wales rose 0.4% in May 2013, the fastest rise in six years – hearkening back to when the housing bubble was going full steam in 2007.

So does that mean a new housing bubble is forming? While that idea might strike some as ridiculous, here are a few perspectives on that possibility:

“Help to Buy” risks another bubble – According to Sir Mervyn King, the Bank of England governor, this three-year initiative which will have £12 billion of public backing, is too similar to the American government guaranteed mortgage market. By providing taxpayer underwriting of as much as 15% of mortgages on homes valued £600,000 or less, the programme might inadvertently send prices skyward.

London and the South East most at risk of a bubble – CNBC-TV, the financial news network, is also using the “B word” to describe what is happening in these specific areas, where prices rose faster than the national average of 0.4% in May (0.9% in London and 0.5% throughout the prosperous South East). “The gap between supply and demand in London is the largest it has been since spring 2009, said the Hometrack property analytics firm’s director of research, Richard Donnell. “In the last six months, demand has grown by 15% [in London] while supply has declined by 0.6%.” He says there is a reluctance to put homes on the market in these particular areas, given the uncertainties over jobs and housing availability elsewhere.

Basel III banking regulations and debt funding may restrict development – Real estate analysts at Savills forecast that serviced land (property with infrastructure, transport access and built structures) will achieve the 2007 peak values by about 2016. But because debt funding is limited, house builders will likely focus on smaller sites and build in lower volumes. This will tend to put a crimp on overall development such that the supply will remain tight, inadequate for the still-growing UK population.

The Savills analysis that homebuilders will lack necessary financing does not take into account the newer two-step model for developing raw land into built housing. Homebuilders now have an option: take on the full risk and extended time frame of development by buying raw land from farmers and other owners, or wait for an investor team to do about half of that work for them. In the latter scenario, investors in UK land, led by land development specialists, identify land with optimal development potential. Those specialists will have a well-informed approach to buying, being familiar with local zoning authorities who can make a designation change from, say, agriculture to residential and commercial uses. Once a purchase is made and that use designation secured, the investors often build key infrastructure features, such as streets and public utilities. Only then will a homebuilder step in to purchase lots ready to build. Profits may be split between both entities, investors and homebuilders, but so too is the risk cut by half.

Individuals who wish to participate in the investment phase are urged to do so with the help of a personal financial advisor. The personal financial advisor can assess the value of alternative investment in land within a holistic view of one’s total wealth portfolio. They also should identify a strong land investment organisation that can illustrate success with earlier projects.