MELBOURNE'S urban fringe has been swamped with 35,000 unsold homes, prompting warnings the glut could trigger a further slump in property values, and fuelling criticism of the Baillieu government's ''crazy'' decision to expand the city's boundary.

The stockpile of unwanted housing in many of Melbourne's newest suburbs has led to warnings by some planning experts that ''suburban ghettos'' could emerge on the city's fringe, creating a social divide.

Of the record 55,290 unsold homes in Melbourne in June - the highest number of any capital city in Australia - most were concentrated in about 50 suburbs on Melbourne's periphery, where more than 60 per cent of all unsold homes in Victoria are located, according to data from SQM Research.

As demand has fallen over the past year, the number of outer suburban homes with ''For Sale'' signs has jumped by almost 40 per cent.