One big issue in London is that because of increasing house prices (20%+ year-on-year is pretty common) foreign investors are buying large numbers of properties to the point where they are not even advertised for sale in the UK. They then leave them vacant, relying on the prices rises for their ROI. This avoids all the complexity of finding and managing tenants. Developers know they can sell high-end luxury apartments so they build them. People buy them but no-one lives there so there is no downward effect on prices.
A different but related issue is the lack of decent hotels and the subsequent insane pricing of Central London hotel rooms has led to a booming "apartment hire" industry where huge volumes of housing stock are purchased by corporates for intermittent use. These count towards the number of new homes built so the Government can use these figures to talk about how they're empowered house builders and encouraging growth and all that, but the actual volume of usable housing stock doesn't change.
This means that there are huge sections of Central London which are unaffordable for people who work in or near those areas. The average house price in Greater London is likely to hit Â£600,000 ($940,000) this year while the median salary is about Â£35,000 or $55,000.
Despite all the talk about free markets and the choices of people to live elsewhere and whatnot, I'm pretty sure that the above is evidence of a dysfunctional and distorted market.