Elsewhere: City within the City

The City of London (also known as "the Square Mile") extends from the area around Fleet Street on its western edge to Middlesex Street in the east. To the south lies the Thames and to the north a wobbly line from Holborn to Liverpool Street station defines this unique locale, which dates its democratic statutes back to 1141. Now devoted to business, the City is proud of its 4 per cent contribution to UK's gross domestic product.

In among the skyscrapers are just under 6,000 residential units, housing approximately 8,000 people. Two centuries ago the population was more than 100,000 but during the 19th century most moved out into London's newly built leafy suburbs and the number dwindled to a post-war low of about 4,000. Recently however, the population has been growing.

"We're trying to maintain London's status as a world-class city and although we don't want residents to hamper our ability to put together large-scale office development schemes, there are pockets where there is already a strong residential element, where we're pretty relaxed about applications for change of use from office to residential," says chief planner Peter Wynne Rees.

At the end of last year, change of use permission was granted to a row of three Grade II-listed late Georgian townhouses tucked away just off the main thoroughfare of Bishopsgate. Previously, these former merchants' houses had been rented as offices and when they came up for sale in June they were snapped up by developer Jason Arden of Eastbank Studios.

Renovation work is due to start soon to convert them back to houses. "We've had interest and half a dozen offers but we've still decided to do them up ourselves and sell them in spring/summer 2009, or rent them if the market is still flat," says Arden.

"We've seen the profile of buyers change in the last few years," says Nick Moore at estate agency Hamptons International. "It used to be just investors buying to let, then we saw more demand for pieds-à-terre. Now we get a lot of owner-occupiers - people who want to live in the City full time."

And life has become easier for residents, with the Square Mile now passing the "where can I buy a pint of milk?" test. "We looked at the shopping to the east of Oxford Street and saw there wasn't really any. We set about changing that," says Wynne Rees. Retailing arrived in the Royal Exchange building, just opposite the Bank of England, with stores such as Bulgari and De Beers, while along Cheapside shops such as Jaeger, Monsoon and Ted Baker are appearing. To the east of St Paul's cathedral construction has begun at One New Change, a £500m mixed-use development that will include a modernist mall by French architect Jean Nouvel.

The arrival of more bars and restaurants is encouraging full-time residents, but for a larger full-time community it's the Barbican Estate, the City's largest residential cluster, that has become increasingly sought after.

Built on bombed-out second world war wasteland, it was the outcome of extended arguments about what should be built. Earlier proposals favoured commercial developments on the 35 acres of land but the then minister of housing, Duncan Sandys, helped swing the argument in favour of "a residential neighbourhood incorporating schools, shops, open spaces and amenities, even if this means foregoing a more remunerative return on the land".

Architects Chamberlin, Powell and Bon were chosen for the scheme and the "topping out" ceremony for the first block was held in 1966. Now grade II-listed, the estate has many passionate devotees.

One resident thought she would have to quit her pied-à-terre when she started a family but discovered that there are plenty of families in the complex. "We moved from the seventh floor to a bigger apartment on the 30th floor and then to the 35th floor," she says. "The views are spectacular. It's quiet, there's a sense of space and it's wonderful with the gardens and the arts centre."

Prices for studios start at £270,000, while penthouses can go for more than £2m. "It's popular with architects," says Tina Evans of estate agency Frank Harris. "There's even a salvage store for original fixtures and fittings."

If 1960s architecture doesn't do it for you, demolition work has started at Milton Court for a 38-storey residential tower called The Heron, where 284 studio, one- and two-bedroom apartments will sit above a concert hall and a training theatre for the Guildhall School of Music and Drama. Marketing begins next year with the project set for completion in 2012.

According to research from Savills, prime property in the central areas of London fell by 5.5 per cent in the first quarter of 2008. They acknowledge "the prospect of further falls in 2009". "We expect the prime central London market to be one of the first to recover." They quote the average price of a flat in 2007 at £483,000, with one third of flat sales achieving more than £500,000. Land registry figures show only 244 sales in 2007 and Savills sees demand for City properties being protected from the shocks elsewhere partly due to this restricted supply. The July FT House Price Index shows a near 15 per cent drop in prices in the City but the statistic should be assessed in the context of the low turnover.

Otherwise there is still the opportunity to live in one of the finest residential addresses in London, albeit with strings attached. Mansion House is one of the few residences that really can claim to be yards from the Bank of England. To move in, all you need to do is win the ancient position of Lord Mayor of London, a post that has privileges that can eclipse those accorded to the more recently established post of Mayor of London.