The Unraveling of the Suburban Fringe

(page 2 of 2)

"Prices are dropping where new construction tended to be active, and this tends to be outside the urban core," said Kenneth Rosen, chairman of the Fisher Center for Real Estate & Urban Economies at the University of California at Berkeley. "New housing dropped twice as fast as existing homes."

Suburbs Attracting Inner-City Woes

The March issue of Atlantic Monthly painted a dark picture for suburbs in coming decades. With rising gas prices and traffic congestion, Christopher Leinberger, a visiting fellow at the Brookings Institution who also runs the University of Michigan's graduate real estate program, predicted that fringe suburbs would become the inner cities of the future as gas prices and traffic make them increasingly unappealing. Those suburbs, which are far from job centers and public transportation, will fall into decline and "will become magnets for poverty, crime, and social dysfunction," he wrote.

"About 25 years ago, Escape from New York perfectly captured the zeitgeist of its moment," the piece concludes. "Two or three decades from now, the next Kurt Russell may find his breakout role in Escape from the Suburban Fringe."

Leinberger says not all suburbs will suffer this fate. (Most cities have a wealthy band of suburbs, such as the Main Line outside Philadelphia, that are holding value.) Many of Washington, D.C.'s inner suburbs such as Bethesda, Md., and Arlington, Va., could be role models for other suburbs, he said. They are dense, walkable communities focused around public transportation. Leinberger, who is also a developer, said suburbs should start building mixed-use projects around suburban train stations. "Walkable places are now the most expensive on a price-per-square-foot basis because there is a tremendous pent-up demand for them (20 years ago it was the cheapest housing in the region)," Leinberger said. "We've got a structural change taking place in this country. Gas prices are just accelerating the trend."

Immigrants Heading to the Suburbs

Leinberger's hypothosis is supported by academics and planners who see sprawl as bad for the environment and inefficient because of the costs of roads, sewers and other infrastructure costs.

Joel Kotkin, a presidential fellow at Chapman University in Orange County, Calif., disagrees. He points out that many suburbs have become strong job centers and are increasingly self-sufficient, offering residents more than just the basic shopping and entertainment options, especially as immigrants opt for a suburban lifestyle. The best Chinese food in Los Angeles County is in the San Gabriel Valley and the best Indian food in the Houston area is in the Sugarland suburb, he said. "What you're seeing is that suburbs are becoming places unto themselves," Kotkin said.

Home values have been hit hard in Corona, Calif., about 50 miles outside of Los Angeles. But Cameron Novak, a broker with the Homefinding Center in Corona, said many of the suburb's residents work in neighboring Orange County, not Los Angeles. He suggested another study for BusinessWeek, of suburban job centers. He said we might recognize the pattern: weakness spreading outward.

Click through our slide show to see the suburbs in the U.S. with the biggest percentage sales drop.

Gopal writes about real estate for BusinessWeek.com in New York .