Britain's government said it is not planning to crack down on foreign investment in London's residential property market, after an asset management firm warned the economy would lose out on billions of pounds.

London Central Portfolio (LCP), a financial services firm for property investors in the capital's most expensive areas, published research claiming that government plans to restrict the investment could cost the economy as much as £5.6bn (€6.5bn, $8.6bn) and the loss of 28,000 jobs.

Critics of the capital's housing market point to the spillover of high property prices in "prime" London areas to other boroughs, driving up prices and rents in ordinary and poorer areas, which are also hit by a lack of supply of new affordable homes.

"[Housing Minister] Mark Prisk has no plans to do anything that would curtail inward investment, including restricting the market to the UK or giving local residents priority for sales," said a Department for Communities and Local Government (DCLG) spokesman to LCP after the research had been published.

LCP said the 83,250 new-builds planned for London will contribute £2.8bn in tax through VAT and stamp duty, as well as £5.2bn into the wider economy. Its research also found that 44% of London's new property developments are purchased by buy-to-let investors.

"The private rented sector (PRS) fulfils an important requirement within the City. It provides housing for international students, foreign visitors and corporate executives, all sectors the government is actively promoting. Not only this, but with no PRS, the contemporaries of Prince George of Cambridge will no longer be 'generation rent' but rather 'generation live-at-home'," said Naomi Heaton, chief executive of LCP.

However, campaigners say they are worried about London's residential property market being used by investors solely to make money.

"Housing is not like any other asset on which the value can be speculated. It also has a crucial social value - everybody needs a space in which to live," said a spokesman for the PricedOut campaign for affordable house prices.

"We are deeply concerned about the trend of housing in 'prime' areas of London simply not being lived in, where the primary, or indeed the only, reason these houses are being purchased is in speculation of a capital gain.

"While we agree that the Private Rented Sector does play an important part in London's housing, the rental yields being generated in central London are tiny compared to the capital outlay, again indicating that it is speculators rather than long-term investors who are currently driving the market upwards."

London's house prices have bucked the trend of every other region in England, Wales and Northern Ireland, which have all seen declines since the financial crisis tore through the UK.

Nationwide reported London's house prices hitting an all-time-high average in June, at £318,214, a 5.2% annual rise. The price gap between London and the rest of the UK was also the widest it had ever been.

Across the country prices are 9% below their pre-crisis peak, but London's prices are 5% higher.