WASHINGTON- U.S. homebuilding increased more than expected in August, but sustained weakness in single-family projects suggested builders continued to struggle with higher input costs as well as labor and land shortages.

Housing starts advanced 3.9% to a seasonally adjusted annual rate of 1.615 million units last month, the Commerce Department said on Tuesday. Data for July was revised up to a rate of 1.554 million units from the previously reported 1.534 million units.

Economists polled by Reuters had forecast starts would rebound to a rate of 1.555 million units. Housing starts jumped 17.4% compared to August 2020.

Single-family starts, which account for the largest share of the housing market, dropped 2.8% to a rate of 1.076 million units. That was the second straight monthly decline. Single-family starts dropped in the West and Midwest. They rose in the Northeast and the densely populated South.

"Higher input costs and shortages remain headwinds for builders," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. "But still-low inventories should be a positive for activity as these constraints ease."

Starts for buildings with five units or more soared 21.6% to a rate of 530,000 units. The multi-family housing segment is being boosted by demand for rentals as COVID-19 vaccinations allow companies to recall workers to offices in city centers.

Early in the coronavirus pandemic, there was an exodus from cities as people worked from home and took classes online, fueling demand for bigger homes in the suburbs and other low-density areas. While the pandemic tailwind is fading, demand for housing remains strong thanks to near record low mortgage rates and rising wages from a tightening labor market.

But still-expensive lumber and scarce land and workers are making it harder for builders to keep up.

A survey from the National Association of Home Builders on Monday showed confidence among single-family homebuilders edged up from a 13-month low in September, but it noted that "delivery times remain extended and the chronic construction labor shortage is expected to persist."

Permits for future homebuilding rose 6.0% to a rate of 1.728 million units in August. Single-family permits gained 0.6% to a rate of 1.054 million units. Permits for buildings with five units or more jumped 19.7% to 632,000.

"We conjecture that this strength in multi-family may be a response to the strong increase in asking rents and the low vacancy rates in rental units," said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

(Reporting by Lucia Mutikani; Editing by Andrew Heavens and Paul Simao) ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters Messaging: lucia.mutikani.thomsonreuters.com@reuters.net))