English housing starts at highest level since 2007 - government data

* English housing starts rise 24 percent from 2012

* Bank of England forecasting big increase for 2014

* Housing shortage driving up property prices

* Construction still well below pre-crisis levels

By David Milliken

LONDON, Feb 20 (Reuters) - Construction started on more new homes in England last year than at any point since 2007, government data showed on Thursday, suggesting rising house prices and incentives to promote home-building are having some impact on supply.

Work began on 123,010 homes during 2013, a 24 percent rise on 2012 and one that offers some support for a Bank of England forecast that investment in housing will increase by nearly a quarter this year after slumping during the financial crisis.

Britain's economy showed the fastest growth of any major European economy last year, but the expansion relied heavily on consumer spending rather than more durable sources of demand, and came from a lower base than other big economies.

Early in 2013 the government launched a scheme called Help to Buy, which initially gave incentives for people to buy newly built homes, and was later extended to aid the purchase of previously owned properties.

Many economists criticised the scheme when it was launched because it risked doing more to push up prices than to increase construction. Since then, prices have risen strongly, and are up more than 8 percent on the year on one measure, with industry experts saying a shortage of homes is largely to blame.

Just 109,670 homes were built in England in 2013, the lowest number since 2010 and a legacy of the small number of housing starts in 2012, which was the lowest since 2009.

But more recently British house builders such as Bellway , Bovis Homes (LSE: BVS.L - news) , Taylor Wimpey (LSE: TW.L - news) and Persimmon have reported strong rises in orders and sales.

Separate figures from construction data company Barbour ABI, also released on Thursday, showed that the trend was continuing into 2014, with residential building accounting for more than a third by value of construction contracts awarded last month.

"It's clear that government initiatives such as Help to Buy and record-low interest rates are having a positive impact, but there is still concern that demand for new homes far outstrips the rate at which houses are coming onto the market," said Barbour ABI economist Michael Dall.

Before the financial crisis, around 160,000 homes a year were being built in England. Even that was less than what many analysts believed was needed to cope with Britain's rising population, with tight planning rules around major cities being blamed for the shortfall.

The opposition Labour Party has called for the construction of 200,000 homes a year across Britain as a whole by 2020.

Thursday's data are not seasonally adjusted, and showed housing starts in the last three months of 2013 sank to 27,880 from the third quarter's five-year high of 34,750. But the level of construction in the fourth quarter was 24 percent higher than a year earlier, matching the rise for 2013 as a whole.