‘Housing has to be boring’: Low-cost developer explains his success | Real estate

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Mark Felising, a property developer, says he’d be happy to be fired. In an effort to attract first-time buyers who may not be able to afford their homes, his company, Pocket Living, builds smaller-than-average apartments with below-average price tags.

It is a business model whose success depends on the fact that many have been priced out of town due to the housing crisis. Maybe it would be a good thing if Pocket’s niche didn’t exist?

“It would be a huge success for me,” says Vlessing, sitting at the kitchen table at one of his property projects in Lambeth, south London. “I think housing must be boring.”

Buyers of Phuket Living apartments are contractually obligated to pass on a 20% discount on the local market price in perpetuity, which reduces the scope for volatility. Photograph: Graeme Robertson/The Guardian

The one-bedroom Pocket Apartments are categorized as “affordable,” which is 20% cheaper than the average local market price. The key to the trade off is in the name: the apartments are about a fifth smaller than national standards, but try to make up for their modest size with a smart design.

His work shows no signs of slowing down. She has developed nearly 1,000 of her smaller homes across London and is now studying Cambridge for her first project outside the capital.

“I think the housing challenge is there and it will remain for many years to come,” Vlessing says. “It will become more political.”

The housing sector witnessed an exceptional period in which prices continued to rise despite expectations that the impact of Covid on the economy will lead to a deflation in the market. Instead, historically low interest rates, supply that had constrained for years, pent-up demand from early shutdowns and a rush for more space drove property prices up 11% in the year to August, according to the National Building Association.

Pocket Living aims to create 400 sq ft (37 sq m) of units, compared to the average floor space of 43 sq m apartments (“just under four parking spaces”). Photograph: Graeme Robertson/The Guardian

It’s hard to get 20% off small project rates for private developers who want to make a profit. The Pocket formula deals with the challenge in two main ways, one of which is the cut-off space. It aims for 37 square metres (400 square feet), compared to the average floor area of ​​43 square metres in the UK (“just under four parking spaces,” the Office for National Statistics adds). In fact, additional parking and restrooms are among the additional things that Pocket avoids.

Vlessing is blunt about the compromise: “If I did something bigger on 500 square feet, my people wouldn’t be able to buy that.”

His people are the capital’s relatively low-income first-time buyers – the average annual income of pocket-buyers is £39,000 – and cash buyers. Apartments in outer neighborhoods such as Barking start at less than £200,000, while prices near the center can reach £280,000 or more. Crucially, buyers are contractually obligated to pass on a 20% discount to the local market price in perpetuity, reducing the scope for volatility.

The model has proven solid: 1,000 apartments will be reached around November. Pocket has also started expanding into two- and three-bedroom apartments, albeit at full market prices.

The company aims for a 15% profit margin on projects, which is lower than the 20% to 30% enjoyed by major homebuilders. In 2020, Pocket Living generated revenue of £56 million, nearly £20 million less than in 2019, and ballooned its pre-tax loss of £870,000 in 2019 to £6.3 million, according to its latest calculations. . Vlessing says it was an investment period, and profits will come from 2022.

However, the company also had to contend with rising costs. “The combination of the pandemic and Brexit has been particularly damaging” because skilled workers from Eastern Europe have been put out of work, Felicing says. Copper and brick prices also rose.

Pocket Apartments try to hide their little footprints by using design tweaks to encourage a sense of space: doors are 2.5cm wider than usual, ceilings are higher, floor-to-ceiling windows let in plenty of light and there’s very little dead “circulation space” like hallways.

Pocket Living aims for a 15% profit margin on projects, which is lower than the 20% to 30% enjoyed by major home builders. Photograph: Graeme Robertson/The Guardian

Architecture may not be to everyone’s taste. The entrance porches of the Lambeth development are covered with perforated metal panels that provide some protection from the elements and the noise of passing trains. However, the combination of brick and metal works well in the context of a busy railway track on one side and the housing city of the 1930s China Infantry Council on the other.

One Lambeth resident, who has lived there for more than five years, says her apartment is “beautiful” and the build quality is good, although she thinks the service fee could be cheaper.

“I didn’t move!” She says, by consent. But she admits that the apartments are “chic,” adding: “My neighbor has a child and a husband, and this is going to be difficult.”

Vlessing, who grew up in the Netherlands, says one-bedroom apartments meet an important need. High housing costs make it difficult for key workers to live in city centers. However, Phuket collides with the opposition in some areas.

Labour’s Haringey Council in north London sold a company site in 2016, but the project failed to gain planning permission under new leadership from the party’s left.

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Vlessing, who was an investment banker before running the West End theater troupe, is optimistic about such setbacks. There is little risk of a drop in demand for Pocket Homes anytime soon. The government’s approach has been to “infinitely stick bits of politics onto a broken system,” he says – in part because there was no clear plan from previous administrations.

Perhaps not surprisingly, Vlessing wants affordable homes to be exempt from the community infrastructure tax, a tax on developments that local authorities can levy. He also believes that there should be an assumption to develop small sites across the country to ease the reliance on projects from major developers.

Felicing says the housing crisis is worth the urgent Cobra meeting levels of government to prevent the speculation on house prices that have become a hallmark of recent decades.

“It turns us on to these little capitalists,” he says. I don’t think housing should be an investment this way. It’s become a casino economy because we’re short on housing by a factor of two.”

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