Project starts rose 28.1 percent with construction on an estimated 780,000 housing units begun in the year.
Permits issued rose 30.3 percent to an estimated 813,400, Commerce said.
For the final month of the year, privately owned housing starts came to 954,000 on a seasonally adjusted annual rate, up 12.1 percent from a revised November figure of 851,000.
Starts in December were 36.9 percent higher than December 2011.
The department said housing permits for private projects rose to a seasonally adjusted annual rate of 903,000 in the month from a revised November level of 900,000, a 0.3 percent gain.
Permits issued were also sharply higher than a year earlier, gaining 28.8 percent above the 701,000 permits issued in December 2011.
Residential project completions came to an annual rate of 686,000 in December on a seasonally adjusted basis, a 1.6 percent gain over November and a 13.2 percent gain over December 2011, Commerce said in a release issued jointly with the Department of Housing and Urban Development.
For the year, private project completions rose 11.4 percent to 651,400, a total that reflects the number of housing units completed.
Economists keep an eye on construction starts on their own merits, but also due to the likelihood that new homeowners spend money on items such as lawn mowers, ladders, rugs, curtains, furniture and appliances.