It’s no secret that the apartment sector has been on a tear.

A big share of July’s gain in housing construction came from the multifamily sector, which tends to be fairly volatile on a monthly basis.

But looking at a rolling 12-month total of multifamily starts without any seasonal adjustment shows that construction for the year ended July reached its highest level since 1989, according to Commerce Department data released Tuesday.

Big gains in apartment construction are less bullish for economic growth than a comparable rise in single-family construction, notes Diane Swonk, chief economist of Mesirow Financial, because single-family housing has a bigger multiplier effect for both consumer spending and job growth.

“We will take what economic activity we can get, but our housing market model was designed in the U.S. to build a lot of single-family homes for owners, not multifamily homes for renters,” Ms. Swonk wrote Tuesday.

Single-family construction improved in July but has been softer than expected this year. Single-family building permits, for example, are up just 0.8% through July versus the year-earlier period, compared to a 17.5% year-to-date gain for apartment permits.

Still, the surge in apartments offers further evidence that job gains are boosting household formation and that the housing market faces a shelter shortage that will require more construction—for renting or for owning. The hope is that eventually more of these renters will buy homes.

Rising rents could eventually give potential homebuyers added urgency. A separate report Tuesday showed that rents were rising at their fastest pace in five years in July, up 3.3% from a year earlier. That compares to a 2.8% gain last July, according to the Labor Department.

Many Americans have opted to rent because they don’t have enough savings for a down payment or they can’t qualify for a mortgage. Others may prefer the flexibility that comes with signing a lease.

It’s little mystery, then, why apartment company stocks have been on a tear. Shares of Equity Residential and AvalonBay Communities closed Tuesday at their highest levels since the companies went public in 1993 and 1994, respectively.

This article was originally published in the Wall Street Journal and can be found HERE.