This fellow has the idea that no one gets rich from housing, not even him. Lower cost development with a cap on the sale price, in perpetuity — these will will be both 20% smaller and 20% cheaper than market rate flats.
“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.”
How does he do it? It’s no secret. There are no tricks.
A 20% price discount on small-scale developments is difficult to achieve for private developers that 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.”
He has found a market niche that needs to be served.
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.
At today’s exchange rate, that’s a $277,000 flat — to own — in an outer borough.
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.
What kind of planning permission would it take to do this in our housing-starved cities? He doesn’t mention the price of land but perhaps that’s part of the scheme, getting inexpensive leaseholds for unusual or small parcels. Seattle has unused land it could use for this and a lot of land locked up by speculators that could be put to use with some gentle persuasion, like zoning changes and a ground rent.