New construction of U.S. homes rose by less than expected in September, held back by a plunge in ground-breaking activity for multi-family homes even as single family dwellings rebounded, according to a government report on Tuesday.

The Commerce Department said housing starts rose 0.5 percent to a seasonally adjusted annual rate of 590,000 units, below market expectations for 610,000. August's housing starts were revised down to 587,000 units from the previously reported 598,000 units.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)