LONDON: The number of newly-built homes for sale in London fell to the lowest levels on record last year, according to research.

In the third quarter of 2009, a mere 975 completed new houses or flats were on sale, highlighting the lack of supply that has helped to underpin a sharp recovery in house prices over the last 12 months.

The lack of new units was caused by rising demand from homebuyers following the uncertainty of late 2008 being met with unprecedented low levels of building work as developers cut back on new projects due to financial constraints.

Knight Frank, the property agent which conducted the research, said it had not recorded a smaller number of new units for sale since it began analysing development work 25 years ago.

Liam Bailey, head of residential research at Knight Frank, said: "The issue in the newbuild market is not an overhang of heavily discounted units, but a lack of available supply. The current supply of stock available to buy is down by 20% compared with the first quarter of 2009."

Mr Bailey warned that with the rising demand for new homes and flats, the development pipeline is a concern. Out of 131 414 units earmarked for the future - those with planning permission - 55% are based in East London and many have not even been started.