Unreal Estate

Wealthy Stuttgart is poor in living space

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Pondering €6,000 per square meter. Source: Getty

In terms of quality of living, Stuttgart residents love to tout the city’s advantages over Munich, its comely Bavarian rival. Ringed by a picture-book landscape of vineyards and orchards, with gentle foothills offering romantic views over the lush Neckar Valley, Stuttgart’s geography could make even nature-loving Alpinists swoon. Beautiful, yes, but these attributes also put a lid on real-estate development, threatening to plunge Stuttgart (pop. 628,000) into a full-blown housing crisis.

Over the past six years, 50,000 people have moved to this southwestern city, capital of the state of Baden-Württemberg. The home to Porsche and Daimler, maker of swanky Mercedes-Benz cars, Stuttgart is one of Germany’s fastest-growing cities. Unsurprisingly, with residential construction badly lagging demand and low interest rates keeping credit cheap, prices for single-family homes have gone through the roof.

As a rule, new land only comes on the market in Stuttgart when heirs sell off their holdings. And yet, Fritz Kuhn, the environmentally-conscious mayor, is loath to approve greenfield sites for new housing, though his booming city is bursting at the seams. “We will not give up the beauty of the landscape. That’s a promise,” Mr. Kuhn told a real-estate conference.

Unlike him, some city councilors are eager to free up leafy sites for new housing, particularly the surrounding orchards and gardens so cherished by locals. However, the authorities have stopped short of labeling possible areas for development, fearing a backlash from Stuttgart’s activist citizenry. Controversy still rages over a staggeringly expensive train station, dubbed Stuttgart 21, being built downtown. And concerns persist over air pollution from the construction, particularly fine dust. It’s no coincidence that the city was among the nation’s first to pass a ban on diesel vehicles from 2019.

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In Stuttgart, green is the new gold. Source: Fotolia

Given the skyrocketing demand for housing, Mayor Kuhn’s efforts to assuage his critics look like a fig leaf. Mr. Kuhn is keen to point out that the city is seeking to raise the amount of subsidized new homes to 30 percent of the total, from the current 20 percent. There are plans to complete 2,000 new residential units per year, drawing on land in a handful of new areas such as Neckarpark to the northeast and plots freed up by Stuttgart 21, which will route trains underground in the city center. But with Stuttgart 21 mired in delays — completion is now tentatively slated for 2025 — the timing of this new living space is still up in the air.

A single statistic underlines the extent of the housing shortage. A mere 63 new homes were sold in Stuttgart in the first three months of 2018 — the lowest turnover in decades. Due to scant supply, experts don’t see this trend softening anytime soon, even if real-estate inflation has slowed somewhat.

By German standards the prices are simply breathtaking. In Stuttgart as a whole, new homes cost an average €6,040 per square meter (m2), with the luxury segment fetching up to €10,000 per m2. Prices of development plots have risen as much as 35 percent in the past year, says Kerstin Schmid, managing director at E & G Private Immobilien. In the market for existing homes, apartments are running at €4,000 per m2. This means that buyers can expect to fork out €450,000 for a previously-occupied apartment of 100 m2, including taxes and fees — a leap of more than 40 percent in just three years.

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Densification in progress: Source: Unsplash/Simone Hutsch

At the high end, prices appear to have topped out for the time being, with properties spending more time on the market and buyers more finicky about what they want. In a premier location in the hills overlooking Stuttgart, a new single-family home can easily cost €3.5 million, says Ms. Schmid.

Public funding for residential construction hardly makes things easier. Based on new projects under construction, expected to yield nearly 3,000 units, a subsidized new apartment now costs almost €500,000 including taxes. A young family with two children stands little chance of getting more than half that amount in subsidized loans. Among the larger projects in development is the former children’s hospital Olgäle, with 225 new apartments of which 116 will be subsidized.

Other sizeable housing projects include Neckarpark (900 apartments), a former power station in Hackstrasse (800 apartments), Europaplatz square (300 apartments), Feuerbach regional train station (160 apartments) and the northern hilltop area of Killesberg (100 apartments). In Stuttgart’s air-tight housing market, these properties are already trendy merely by virtue of their availability.

Martin-Werner Buchenau is a correspondent for Handelsblatt in Stuttgart. Jeremy Gray, an editor at Handelsblatt Global, contributed to this story. To contact the author: buchenau@handelsblatt.com

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