Marc Vlessing, a property developer, says he would be happy to be put out of a job. In an attempt to attract first-time buyers who might otherwise be unable to afford their own homes, his business, Pocket Living, builds smaller-than-average flats with lower-than-average price tags.
It is a business model whose success is based on the fact that so many have been priced out of city living by the housing crisis. Perhaps it would be a good thing if Pocket’s niche did not exist?
“That would be to me a great success,” says Vlessing, sitting at the kitchen table at one of his developments in Lambeth, south London. “I think housing should be boring.”
Pocket’s one-bedroom flats are classed as “affordable”, 20% cheaper than the average local market rate. The clue to the trade-off is in the name: the flats are about a fifth smaller than national standards, but try to make up for their modest size with clever design.
His business shows no signs of slowing down. It has developed nearly 1,000 of its small homes across London and is now considering Cambridge for its first project outside the capital.
“I think the housing challenge is here to stay for many years to come,” Vlessing says. “It is going to get more political.”
The housing sector has experienced an extraordinary period in which prices have continued to surge despite predictions that Covid’s impact on the economy would deflate the market. Instead, historically low interest rates, supply that has been constrained for years, pent-up demand from the early lockdowns and a rush for more space have meant that property prices rose by 11% in the year to August, according to Nationwide building society.
A 20% price discount on small-scale developments is difficult to achieve for private developers who want to make a profit. Pocket’s formula tackles the challenge in two main ways, one of which is the space cut. It aims for 37 sq metres (400 sq ft), compared with the UK median floorspace for flats of 43 sq m (“just under the size of four car parking spaces”, as the Office for National Statistics evocatively adds). Indeed car parking, and extra bathrooms, are among the extras Pocket eschews.
Vlessing is candid about the compromise: “If you make something bigger at 500 sq ft, my people can’t buy that.”
His people are the capital’s relatively low-earning first-time buyers – the average annual income of a Pocket buyer is £39,000 – and cash buyers. Flats in outer boroughs such as Barking start at less than £200,000, while closer to the centre the prices can be £280,000 or more. Crucially, the buyers are contractually bound to pass on the 20% discount to the local market rate in perpetuity, reducing the scope for flipping.
The model has proved durable: the 1,000-flat milestone will be reached around November. Pocket is also starting to expand into two- and three-bedroom flats, albeit at full market rates.
The company aims for a profit margin of 15% on developments, lower than the 20% to 30% enjoyed by the bigger housebuilders. In 2020, Pocket Living made revenues of £56m, nearly £20m lower than in 2019, and a pre-tax loss of £870,000 in 2019 swelled to a £6.3m loss, according to its latest accounts. Vlessing says it was an investment period, and profits will come from 2022.
However, the company has also had to contend with rising costs. Vlessing says the “combination of the pandemic and Brexit had been particularly pernicious” because skilled eastern European labourers have been locked out. Prices of copper and brick have also risen.
Pocket’s flats try to disguise their small footprints using design tweaks to encourage a sense of space: the doors are 2.5cm wider than usual, the ceilings are higher, floor-to-ceiling windows let in a lot of light and there is very little dead “circulation space” such as corridors.
The architecture may not be to everyone’s taste. The Lambeth development’s entrance balconies are clad with perforated metal panels that give some protection from the elements and the noise of passing trains. Yet the mix of brick and metal works well in the context of a busy railway track on one side and the orderly 1930s China Walk council housing estate on the other.
One resident in Lambeth, who has lived there for more than five years, says her flat is “lovely” and the build quality is good, though she thinks the service charges could be cheaper.
“I haven’t moved!” she says, by way of approval. But she admits that the flats are “dinky”, adding: “My next-door neighbour has a baby and a husband, which would be hard.”
Vlessing, who grew up in the Netherlands, argues that one-bedroom flats fill an important need. High housing costs make it difficult for key workers to live in city centres. Nonetheless, Pocket has run up against opposition in some areas.
Labour’s Haringey council in north London sold a site to the company in 2016, but the project failed to win planning permission under new leadership from the left of the party.
Vlessing, who was an investment banker before running a West End theatre group, is sanguine about such setbacks. There is little danger of demand for Pocket’s homes falling any time soon. The government’s approach has been to “endlessly stick bits of policy onto a broken system”, he says – in part because of the lack of a clear plan from previous administrations.
Perhaps unsurprisingly, Vlessing wants affordable homes to be exempt from the community infrastructure levy, a tax on developments that local authorities can charge. He also thinks there should be a presumption of development for small sites across the country to ease the reliance on projects from big developers.
Vlessing says the housing crisis merits Cobra-meeting levels of urgency from the government to prevent the house price speculation that became a defining feature of recent decades.
“It turns us into these little mini-capitalists,” he says. “I don’t think housing should be an investment in that way. It’s become a casino economy because we’re undersupplying housing by a factor of two.”