The smart money in real estate is on smart growth

This suburb of Washington, DC inspired REM's 1984 song about the soul-sucking blandness of a suburban adolescence that has been a staple of rock and roll. "(Don't Go Back to) Rockville" described a town of empty houses, "where nobody says hello."

But some experts in the real estate business believe that in the future, more and more of us will be going back to places like the revamped Rockville -- quite happily, in fact.

"They had a point at the time," Sally Sternbach, the head of Rockville's economic development arm, says of R.E.M.'s quiet anthem. "We got it wrong. We built a mall that never found its anchors. It languished for 40 years. It was like the biblical 40 years in the desert."

Then, 15 years ago, Rockville convened hearings and forums to discuss its lackluster downtown, deciding in the end to replace it with a town square lined with shops, restaurants and apartments, all steps away from a subway station -- in other words, more of an urban experience.

The citizenry wanted vibrant street life both for the fun of it, and to attract business. So far, it's worked. Teenagers use Facebook to signal spur-of-the-moment breakdance sessions on the town square's bandstand because, as Dominique Estrera, 17, explained, it's really the only place they can "hang out and break."

Adults like to socialize there, too. "I love the Town Square because I can't walk more than a couple feet without seeing someone I know from doing business," said Robin Wiener, president of Get Real Consulting, a firm that helps healthcare providers put their records online.

Rockville's renaissance over the past four years shows how the shift toward urban-style living has reached the suburbs. And urban planners insist the trend has legs.

Dubbed "smart growth," the movement favors the development of a mix of housing and businesses in and near existing cities. At the same time, it discourages the Topsy-like growth of peripheral suburbs, known disparagingly as "sprawl."

The unexpected revival of a number of cities, from Rockville to Sacramento, stands in contrast to plunging home prices in the suburbs. "America is catching on to this trend," said Peter Calthorpe, who co-founded the Congress for the New Urbanism in 1993 to create alternatives to the conventional suburb.

He says the previous model was based on the assumption that the United States could prop up the single family home in a distant location by keeping the cost of oil and mortgages low. But that era is over. "The true cost of transportation and housing is going to start to surface," he warns.

LIVING FOR THE CITY

If the trend persists, as many expect, it would be a sharp rejection of the preferences and policies that have shaped U.S. housing since World War II.

The suburb as we know it today -- open, low-slung, car-dependent -- was born with the post-war baby boom. All of a sudden, there was a desperate need for housing. By 1950, single-family housing starts had soared from around 286,000 a year in 1945 to 1.6 million, according to Census Bureau data. And as the car became more widely available, and roads spread, so did the suburbs.

During the most recent housing boom, homebuilders started 6.3 million detached single-family homes between 2003 and 2006. By 2007, single-family homes accounted for 63 percent of U.S. housing units.

The baby boomers whose arrival kicked off the postwar housing frenzy fed this latest expansion, too. This time, they sought space for their own families, said James Chung, president of Reach Advisors near Albany, New York, whose clients include developers. "Suburban developers did a fantastic job riding that wave," he said.

But today, aging boomers are growing out of the suburbs and their children have not yet grown into them -- and may never do so to the extent their parents did. This demographic shift, more than anything else, is driving consumer demand for compact, walkable neighbourhoods, Chung said.

Born between 1946 and 1964, baby boomers represent about a third of the U.S. adult population, and will do so through the next decade, said demographer Dowell Myers of the University of Southern California.

Boomers are eager to liberate themselves from the maintenance of house, lawn and car now that their children have skipped the nest, said Mollie Carmichael of John Burns Real Estate Consulting, an Irvine, California-based firm that advises homebuilders. They want necessities within walking distance because they know they will not be able to drive forever.

After a divorce, real estate agent Kim Merrell, 51, found her ideal community in Sacramento. It has a grocer and neighbours who go "porching" to drop in on each other and chat. A local lounge, Mix Downtown, caters to people like her by waiving cover charges for the 40 and older crowd until 10:30 p.m..

In Sacramento, the 55-74 age bracket will expand by 50 percent by 2020, according to the Sacramento Area Council of Governments, which created a plan to reduce congestion and expand housing choices to accommodate that growth. The group aged 35 to 54, which is when people tend to buy single family homes, will shrink slightly.

Of course, not everyone can afford urban life and its pleasures, especially during this period of fitful recovery from the worst recession in nearly eight decades. Building costs in the urban core are double that of the suburbs, said Mark Friedman, president of Fulcrum Property, a developer in Sacramento's midtown.

Developers pass those costs onto buyers. Meanwhile, the housing bust has cut the cost of Sacramento region homes 46 percent from their peak, so suburbia is still a draw for many.

For others, it's the only option, said Henry Cisneros, the former Secretary of Housing and Urban Development who now runs CityView, a developer of housing within the range of average families. "Cities need to understand that a great city needs a mix of housing. It creates dysfunction when workers are required to live at great distances," he said.

But developers will make the most money building for those who can pay a kind of virtue premium, they say. The gas-sipping Toyota Prius set the precedent: people buy it despite a price tag that is at a minimum $3,000 more than a comparable conventional car.

"It's looking for the prettiest buyer, a person who is going to pay more for their car because it is important enough to express their values about the environment," Friedman said.

That lucrative market explains why he and others believe the potential reward in urban development is well worth the risk. "You have to be very careful not to wind up with an obsolete business model in rapidly changing times," said Eneas Kane, chief executive of DMB Associates, an Arizona-based developer of upscale neighbourhoods.

The firm is shifting its focus toward smart growth, including a 1,433-acre Silicon Valley-style industrial salt site with a variety of homes, open space and streetcars.