Marc Vlessing

Marc is co-founder of Pocket Living, where he was CEO for 20 years and is now Chair.  

In 2017 Marc was awarded an OBE for services to housing delivery.  

Pocket was London’s first private developer of affordable starter homes. The company has delivered some 2000 homes with another 1000+ in the pipeline. Pocket’s innovation lies in combining purposeful and affordable high-quality design for single and couple households with a policy and brand approach that allows it to tap into both public and private finance.  

In 2016 the US real estate major Related Companies became its major shareholder. 

Prior to Pocket, Marc worked in the media and entertainment sectors as CEO of Crescent Entertainment, owners of theatres and cinemas. He also produced and wrote a number of award-winning feature films.  

He started his career at County NatWest, where he became an assistant director in corporate finance with responsibility for corporate work in the Benelux and in the media sectors. 

Marc also chairs ProVen Growth & Income VCT, one of the UK’s largest VCTs and is Senior Partner at Namier Capital, a London-based advisory firm that leverages its investment and corporate finance expertise across businesses in Energy Transition, Healthcare and the Creative Industries. 

Marc maintains his sanity by playing the saxophone (jazz). 

Transcript

SPEAKER_01 0:06

I think that we are always going to have at our inner core the desire to own our own home. I think that's a very British thing. I do believe that there is a generation coming through for whom that is such a distant dream that they will become renters and remain renters. I think we will professionalize the rental market as a result. I think, particularly in inner cities, it'll become more of a rental market rather than a for sale market. There's a lot to be said for that. But there's a very big but. You can only have long-term sustainable rental markets if you have low inflation.

SPEAKER_00 0:44

Hi, I'm Susan Freeman. Welcome back to our Property Sheet podcast series brought to you by Mishkonda Rea in association with the London Real Estate Forum, where I get to interview some of the key influencers in the world of real estate and the built environment. Today I'm delighted to welcome Mark Flessing. Mark is co-founder of Pocket Living, where he was CEO for 20 years and is now chair. In 2017, Mark was awarded an OBE for services to housing delivery. Pocket was London's first private developer of affordable starter homes. The company has delivered some 2,000 homes with another 1,000 plus in the pipeline. Pocket's innovation lies in combining purposeful and affordable high-quality design for single and couple households with a policy and brand approach that allows it to tap into both public and private finance. In 2016, the US real estate property company related to companies became its major shareholders. Prior to Pocket Mart worked in the media and entertainment sectors as CEO of Crescent Entertainment, owners of theatres and cinemas. He also produced and wrote a number of award-winning feature films. He started his career at CountyNat West, where he became an assistant director in corporate finance with responsibility for corporate work in the Benelux and in the media sectors. Mark maintains his sanity by playing the saxophone jazz. So now I'm very much looking forward to talking to Mark about the pocket living journey and his thoughts on why we seem to be unable to solve our housing crisis. Mark, good morning. Thank you very much for joining us. I was trying to work out when we first met, and um it was actually, I mean, it was certainly before Pocket, and I think you were involved in theatre and cinema, but you you may be able to remember.

SPEAKER_01 2:42

Gosh, yes, that is taking us both back.

SPEAKER_00 2:46

Anyway, quite a few years ago, and I think it's true to say that um you didn't come into property through a traditional route that um you were in finance um and then media before you started pocket. So would you like to just um kick off and perhaps, you know, tell us a little bit about your career journey?

SPEAKER_01 3:12

Yes. To the outside eye, it looks diverse and doesn't hold together. But uh, of course, to me, it makes complete internal uh coherent logic. Uh I'm a Dutchman. I ended up going to the LSC here for my final degree. Uh I had few friends and certainly no family, and I decided that one of the first things I had to do was to get myself a home that I could own and call my own. And the only way you could do that in those days, and probably still today, as a young person in London, was to become a banker. So I became an became an investment banker for the callous uh reason that it was it was the best means of getting a cheap mortgage. And I bought my first flat in Soho. As it stood, the city of London was going through some extraordinary gyrations with Big Bang, and it was actually a very interesting period to be an investment banker. But ultimately, uh, my area of responsibility there, by the way, was Benelux, which made sense because I'm Dutch and I'd lived in Belgium for 10 years, but also media companies. And ultimately, I think what made me want to move away from the city was that inherently I didn't want to just be an advisor, I wanted to be a principal. As my boss then said to me, of course, the the problem with with this move is as an advisor, you have lots of power and no responsibility, and as a principal, you have lots of responsibility and no power, and he was quite right about that. Uh so I left that and set up my own media advisory business. Uh, this was pre-the digital age, but there was consolidation amongst ITV uh network operators and some interesting things going on with rights. I was very lucky uh that uh the British producer and one-time CEO of Columbia Film Studios, uh David Putnam, asked me to help with raising a fund for him. So it all it all started off well. Uh, I enjoyed myself, and then one of my clients knocked on the door and said, Would you like to give all of that up? Um, stop worrying about where you were going to make your next consultancy fee from and join us as a CEO of our entertainment division. This was a listed property company called Chesterfield Properties, and the institutional shareholders of that business, the PRU in particular, had wanted this generalist uh commercial property developer to divest itself of all its entertainment assets, which comprised Curzon Cinemas, a Staker City Screen, uh, Shepperton Film Studios, uh, a bunch of television and film production companies. Uh so I went into that and discovered that there was an awful lot of really good work within that entertainment group. We were very fortunate that we had the Donmar warehouse, which we had Sam Mendis in as part of it. And I asked myself actually a really straight uh question that you can so easily do when you're an outsider, which is why do all my friends go to the Hampstead and International and never go to West End Theatre? And the answer back was that they don't really trust the West End Theatre. That generation has sort of lost connection with the West End, which at the time was very much being used by producers for rather tired, you know, reenactments of old Oscar Wilde plays. And so I did deals with the Almeida Theatre, with Sam at the Donmar, in order to bring the public theatres into the West End. Because my view was that we had three times more stage capacity and distribution capacity than the National Theatre, which was run by Trevor Nunn at the time, and I could see no reason why we couldn't compete with the National Theatre. And that's what we did. And over a period of three years, four years, being fixed capacity businesses, I learned a lot about what a real estate fixed capacity business looks like. Once you'd covered your house nut and you could pay the wages, it was all pure profit thereafter. And so we turned the theaters and then the cinemas around, and eventually they were successful enough to be exited. Uh, my sadness was that I couldn't keep it together as a group, but it was worth more as a breakup than as a whole. And actually, Quintaine, Adrian Wyatt, then took over the property company. So we'd done a decent job in removing what was deemed previously to have been a poison pill in the entertainment assets out of that. And that brings me very neatly to the point at which I sat down in the kitchen with a very large piece of paper to work out what I was going to do next. And the next thing I ended up doing was pocket, about which I'm sure you have the next question.

SPEAKER_00 7:30

I'm sure I do. So where does that take us to? Was that 2004, 2005?

SPEAKER_01 7:37

Yeah, actually it really does. Neatly take us to 2004, uh, a little earlier, because actually I sat down in the kitchen in 2002, 2003. I took it took some time. I was lucky, you know, I'd I'd I'd done well out of the uh uh sale of those businesses, and I could afford to take some time off. My my wife was also uh hard at work. One of my principal uh rules for young budding entrepreneurs is make sure you've got a fantastic partner, not just to carry you through the emotional ups and downs, but also to help uh deal with the uh unavoidable financial lows uh and lack of cash that you go through. So I was very lucky. My wife at that stage had just become managing director of the British Museum. So there was scope for me to sit down with that piece of paper and work out what I was going to do next.

SPEAKER_00 8:24

So when you sat down with that piece of paper, what was the vision? What potential did you see in the housing market that possibly other people didn't see at that point?

SPEAKER_01 8:34

Well, actually, that's a really interesting way of asking the question, Susan. I mean, I I it started off, if I'm completely honest, with me recognizing that I was unemployable, that uh I had to create my own business. Uh, I think for a lot of entrepreneurs, they set up their own businesses not because they want to become rich or necessarily that successful, but because at some level they need to have control over their own life and destiny. And I didn't want to be in the hands of the stock markets, I didn't want to hand boards, I just wanted to do my own thing. But actually, what the paper exercise, it was a very large piece of A3, and and there was a very good mentor I had at that stage, I do believe in mentors, who said, you know, write down on this very large piece of uh paper on the left axis all the things that you hate doing and therefore presumably are not very good at. And at the bottom, write down all the things that you love doing and hopefully are reasonably good at. And out of those, that exercise came three important motives. The first one was having dealt with large amounts of money as a banker and in the entertainment industries, by that cigar, I also had produced a couple of films and the odd play. There was no point in me setting up a caller store and dealing with pets. It had to be sizable amounts of money. It's a skill, it's useful. If you understand the capital markets, don't walk away from it. The second one was that I had employed in those businesses lots of people who were incredibly passionate about their jobs, were finding it increasingly impossible to render their services in central London. And when I started asking my friends in the academic world, in the educational world, in the health world, what was their number one problem, they said, it is that, that we have people who are passionate about their jobs, you know, and and they'll sleep on the floor with their friends or their family's friends for two or three, four years to get started and to get London on their CV. But then the sheer difficulty of finding a home becomes one where they move out. And the number one reason why your children in state secondary school or primary school will have a different teacher every six to twelve months is housing related. So housing was a wake-up point for me. I actually asked myself, how were these theatres going to be uh staffed in 10, 15, 20 years' time if the people who could still just about afford to live in Bexley and Bromley had children who could only live two hours away from London. That tradition, by the way, it's very traditional. Lots of family passing down. You know, my father was a lighting cameraman, I'm a lighting cameraman. That tradition gets broken if the distance has become too great. And then the third thing was I I'd been lucky working in a property company which had all these entertainment assets. My chairman was a very good developer, a man called Roger Wingate. And we we knocked down some buildings and rebuilt some stuff, and I was I was becoming very aware of how the urban fabric of London in particular was not looking great and was not coordinated well. This was before the GLA, don't forget. And, you know, I sat on the board of something called Central London Partnership with Pat Brown. It was chaired at the time by John Egan. And we were sort of scratching our heads together, why is it that a borough that sits next to another borough is doing all kinds of extraordinary road works without coordinating that with the next borough? There was no coordination. So the built environment fascinated me. And out of all of that came, well, why don't I do something in the built environment that looks after people who need to get on the housing ladder, who are critical to the London economy? And this is the sort of the secret magic source, I guess, of pocket, where, because I'm running it, there will be equal respect and interest for the creative processes as for the administrative processes. And that's a subject I'd very much like to talk further about if you want, because I do think that we still have a bit of a habit in this country of saying, you know, creators to the left and and suits to the right.

SPEAKER_00 12:38

That's so interesting. And I'm glad you mentioned uh Central London Partnership and Pat Brown. I'd actually forgotten that you'd been you'd been on on the board. And uh Central London Partnership and bringing business improvement districts to the UK often comes up in these podcasts.

SPEAKER_01 12:53

Yeah, that was that was one of Pat's great innovations. She took it from New York and brought it to London. She was very very uh indefatigable.

SPEAKER_00 13:02

Exactly. Well, I was on one of those first trips to New York, so um I was very pleased to be involved. So from what you're saying, Pocket was always a commercial solution to to effectively a social problem. But you could have taken an easy route and just bought up lots of residential properties and rented them out to young people. But the route you chose was something like new and and different. And I think it'd be really useful for the listeners if you describe why pocket is different, you know, what what the concept is.

SPEAKER_01 13:35

The person who gave me more insight into this than anything else was my Dutch mother who came to visit me uh in London after I'd uh we built our first uh pocket scheme. And she walked through it, uh, and I'll never forget, she was in the late 70s, early 80s, and she said, Ah, it's just like in Holland. There's nothing special about any of this. And and so I think the cultural background to what you end up doing. I mean, I it's impossible to think of Richard Rogers without his Italian background, is very important. And of course, housing in places like Scandinavia, Holland, Germany starts from the middle outwards. That's a really important insight. We we work on the principle that our main obligation as politicians, as planners, as architects is to find solutions for the middle market because that's 80% of the market. And if you're very, very rich, well, we'd rather not hear about you too much, and we certainly know that not like you to throw it around and and be blingy. And so the rich actually live, on the whole, in buildings which are reasonably indistinguishable from that of most other people, uh, and there certainly aren't any Gaetic communities. And the mantra in these countries tends to be, not always successfully, that they have a social obligation and the tax system reflects this to make sure that nobody has to live on the street and nobody has to live in in great poverty. So working your way through the question, which is the question I was asking myself, which is how, if people cannot get on the first rung of the housing ladder, can they attach themselves to decent housing? That is a question which culturally in those countries comes up less. It is coming up more and more because those markets too are becoming polarized, but it's not a question that is addressed in the United Kingdom. For the simple reason that there are two markets in the United Kingdom. And whether you're on the left or on the right, this is the holy grail of housing. There is the open market uh Victorian, unbridled capitalism, in which we bore each other to tears over Sunday lunch about our housing equity and try and get on the housing ladder as quickly as possible and build and build and build up that equity by buying and selling and buying and selling homes. The average home in this country is traded three times more than in Germany, interestingly. Or there is the sort of state-centric safety net of social housing. And so the intermediate section is kind of left behind. And because we have a Section 106 culture, which I think has been one of the most problematic aspects of the way in which we've regulated housing, we are taxing open market housing in order to deliver part, not all, of the social housing that the country needs. By the way, the country needs a lot more of, and I'm completely with this government on that. We do need to do something dramatic about the provision of social housing. But you can see how that then immediately polarizes the debate in a way in which developers will try and maximize the return on their private housing, and it will be focused more on the upper middle to upper end of the markets than on the middle-middle markets. And so, as Tony Pidgley once memorably said, uh, Flessing succeeded with pocket lifting because he didn't know what he was doing, and he was right about that. I didn't know what I was doing, but I was asking a question which he very generously would say publicly, uh he wasn't asking, and most people weren't asking, which was not where was the park, if you take the ice hockey analogy, but where was the park going to be in 10 years' time? And the the prediction that I made with my business partner, then Paul Harbaugh, was that this problem of people not, young people not being able to buy a broomstick cupboard in West Kensal and trading that up for a studio in Shepherds Bush and trading that up for a one-bedroom flat in, and you know, eventually after five trades, having a two by two and an LTP of 60%, if they couldn't start that process, then somebody had to build that housing for them.

SPEAKER_00 17:28

And what was the solution that you came up with because it it was novel and hasn't really been followed by by others, has it?

SPEAKER_01 17:38

No, and that's actually a source of regret to me that it hasn't been followed by others. Um as you know, we don't have a prescriptive planning system, but we do have an adaptive planning system. And so it tends to adapt around innovations that it likes to accord uh that privilege to. And it's done that with student housing, it's done that with retirement housing. And to some degree, it's done it with intermediate housing, but it's never had the absolute focus of central government. But again, neither from the right, which is very surprising. I one of my greatest uh disappointments was the the Conservatives not getting it, but equally uh Labour administrations finding it quite hard to really focus on the intermediate market. And I'll tell you my theory about this. I think ultimately we are a social democratic uh product. We thrive on social democracies, we we s we thrive on the politics of centrism. And the moment you get the lurch to the left, where politicians, you know, and I remember the deputy mayor for housing uh now in the treasury uh making this point very publicly that the only thing that he really cared about was social housing. And that's how he got his votes, and nothing else mattered to him. I would point out to him that when he was counting member for housing in Islington, he presided over a unitary plan which created a borough in which only two people could live, the very, very rich or the very, very poor, and Islington has remained a highly polarized community as a result. Now, you know, therefore, does it matter that you think about the people in the middle more? I think so. Is it being done? No, uh, because we tend to lurch to these extremes um through the political cycle.

SPEAKER_00 19:29

How is a pocket home affordable? What makes it affordable and how do you make sure it stays affordable?

SPEAKER_01 19:36

Well, it was governed by blinding ignorance because we didn't understand the thing about the planning system. But essentially we we worked out fairly quickly that if you could render a flat at at uh that was 20% smaller than that which was getting planning in London on average, and you could avoid a bunch of other economic externalities like car parking, uh like oversized balconies. And although uh you were building numerically above the threshold at which you had to enter into Section 106 and deliver some social housing, if you could persuade the planners that having one or two social housing units on a small site was was just not a good way of optimising their desire for social housing, then you could on smallish sites in London deliver 30, 40, 50 compound one-bedroom flats at a 20% discount to the local one-bedroom market. They would be a little bit smaller, but they would be incredibly well designed, and we can talk about how we did that later. But then the the secret was to tie that into an income restriction, which we policed uh and still do to an inch of its life, whereby you could only buy these if you earn less than the mayor of London's income threshold for affordable housing, which is today at 90,000 pounds. And when you sell your pocket home at a 20% discount, although you own 100% of it, you can only sell it at a 20% discount. You uh need a certificate from us that you're selling it to somebody who, like you, was eligible. Eligibility is that you earn less than that threshold amount. You live or work in the borough, and you don't uh already own a home.

SPEAKER_00 21:12

Okay. So that sounds pretty straightforward. And did the local authorities that you approached um initially welcome the concept? Did they understand it? Did they think you were building bed sits and and and just didn't like it?

SPEAKER_01 21:27

Well, the local authorities that didn't like it would use language that would keep me up uh uh at night in fear and in tears. And a suboptimal development of a monoculture of, you know, compact tiny flats for a market we don't really care much about and no social housing. So that was that was the worst. But what I learned fairly early on was that you needed a champion within these departments. Um, you needed somebody who was prepared to think out of the box. You had to absolutely understand these were overworked people, and that your scheme was not going to. Make any difference ultimately to the housing supply numbers that they had to reach. You know, clearly they were always going to prioritize, you know, King's Cross with hundreds and thousands of units over pocket, you know, in their community building 40, 50 units. But you could find these good folk and you could work with them. And we were lucky that we did. We were also very lucky early on. There was a wonderful man, sadly, passed away called Jeff Marsh, who advised me, after a mere year of having set up pocket, there are only two boroughs that matter Mark, Camden and Westminster. You get Camden, you get all the left-wing boroughs. You get Westminster, you get all the right-wing boroughs. That was good advice. So we did focus very much on which boroughs to try and succeed in. And Camden was indeed, I think, the first borough in which we got a consent. Every consent that we got had an officer's recommendation. Every consent that had an officer's recommendation was turned down by the Council Planning Committee. And every consent then was turned over on appeal, which was an absolutely extraordinary roller coaster, but did teach me that although people complain hugely about the British planning system, and there's a lot to complain about, it is it lacks by comparison to continental models in prescription. It's a sort of jumble of rules in which it depends as much on the performance on the night in front of a planning committee of lay people as it does on anything else. Nevertheless, the advantage of the British planning system is that you can, through argument, get people on side to create exceptions and do stuff with you if they believe that you are doing it purposefully and with good intent. And we were lucky that we found enough councils. I mean, we built probably, this is not an exaggeration, in more councils in London than any other developer, apart from maybe one or two nationals, but we built and delivered housing in 22 London boroughs against the odds often. And sometimes I wonder whether we should have not focused a little bit more on three or four. But the recipe of trying to find a champion did eventually work.

SPEAKER_00 24:03

It sounds as if it was really hard work at the outset, if you were having to um go to planning and get turned down, then appeal.

SPEAKER_01 24:11

Yeah, I mean it was very hard work. And actually, I remember getting I almost gave it up because I I I couldn't work out, Susan, why if you were delivering 100% planned technically, by the way, affordable housing. I mean, because it was a 20% discount in perpetuity for people on an income restriction, the NPPF, as it was called at the time, oh, it still is, accorded it with uh affordable housing status. It is only in the last eight years that politicians have come up with this concept of genuinely affordable housing, which I I still think was a mistake, because I don't think that there is a definition for what is genuinely affordable housing. We know emotionally what we mean by it, but we were affordable housing. And I want to come back to that point, by the way, because I think there's there's a real misconception about how we call affordable housing in this country, and there's a dishonesty about it, which uh upsets me. But yes, it was difficult, it did take a lot of time, but in the housing market, if you can build a prototype or two and get politicians and planners to kick the tires, they will back you. And that's what happened. And we were very lucky when s when Boris Johnson became mayor, he accorded us an equity loan from the GLA, and that was then doubled by Sadiq Khan's team, and we still have that equity loan from the GLA, and we work very closely with uh the current deputy mayor who, Tom Copley, and his team, in order to keep finding ways of of of making this kind of housing work. But but but it is an uphill struggle, and it shouldn't it really, really shouldn't be this difficult.

SPEAKER_00 25:51

And the sort of people that will buy the pocket unit are there presumably people that otherwise wouldn't be able to live in in central London?

SPEAKER_01 26:00

Oh, the research that we've got on this is absolutely compelling. I mean, you know, endlessly. We've now built closer to 2,000 homes. The research shows compellingly that were it not for that pocket home, these people would have left London. They would have taken their professional and uh educational experience and moved to somewhere that they could afford. The other important evidence is that as a result of getting their foot on the lower rung of the ladder that we created for them, they have been able to build up some housing equity. Uh, because although these homes continue to trade with an income restriction to a certain group of people, if the market goes up, they go up as well. And of course, they're paying off a mortgage and they're not paying rent. We all know that renting is more expensive than paying off a mortgage. So we have helped one and a half to two generations worth of young people form viable long-term households. And the multiplier effect of having built 2,000 of these homes is many times over because these homes are still being traded today within the affordable housing space. We can debate this between the two of us. You know, why is it so difficult in the UK to make these things stick? And that's an interesting conversation which we might need to have.

SPEAKER_00 27:18

Yeah. And you mentioned uh how important design is. And I remember just being so impressed, uh, you took me round one of your early schemes, and you know, it was designed so cleverly that you know you didn't feel that the space was small, you know, it was very light, and it makes a difference, doesn't it?

SPEAKER_01 27:37

Yes, it does. I mean, the psychology of space matters enormously. Um, you know, if you put the uh front door of a compact one-bedroom flat to the side of the unit, you need a corridor that's longer than is necessary to get to the three doors you need to get to. You need to get to a bathroom, a bedroom, and a kitchen living room. So always put the front door towards the middle. Then you can have the shortest possible circulation space. But as a result of minimizing the amount of circulation space, you can actually make it a little bit wider and you can put a front door on there, which is wider than you'd normally expect. So when you've told your parents you're buying a pocket flat, they're literally putting their arms around their shoulders when they walk in thinking it's going to be so tiny, and then they walk into a corridor and a front door which is bigger than their own. So that's the psychology of space. Uh, have continuous flooring, have lots of fenestration, have intelligent lighting, don't just put a pen into the middle of the room with an on-off switch, give people the way, a way of lighting their rooms depending on their moods, put in ample storage, etc. And actually, one of the things that I'm proudest of, and we were very lucky, Rem Kohlhaus, uh, who I I got to know a little bit, was at the time running the Architectural Academy in Rotterdam, just done a study on the impacts of living in homes that were too small, the psychological impacts. So we learned a lot about what to do to overcome those challenges. And I think we we we came up with all the solutions. I consider that the compact one building flat the pocket has developed. And it is identical today to where it was 20 years ago. It's like the Volkswagen Beetle. You know, we came up with a design that, for better or worse, was so well adapted to that market need that literally all we had to change over time was some of the materials, and of course we had to stay in touch and adapt to building regs, but the the layout remains the same. And you know, what would I prefer as a single or as a couple, you know, owning 100% of a compact home which has been really thought through to my needs, in a building which, by the way, because the homes are compact, has ample courtyards and roof gardens, and we really celebrate the way in which we can in these buildings, the outdoor life, which made a huge difference for people during COVID, incidentally. Or, you know, buy something which is bigger, which I probably won't be able to own 100% of through shared equity. I mean, I think this turned out for many people to be a better solution.

SPEAKER_00 30:08

And have you been attracted by built to rent? Has that been part of the pocket journey?

SPEAKER_01 30:14

Well, we were very lucky that we sold the business between 2016 and 2019 to uh the US uh real estate major related. And so uh we never had the balance sheet to hold anything, but that is now changing. And I am now chairing the business. I'm no longer CEO. Paul Rickard is very ablely running the business day to day, and we are moving in the rental market. We've already done two or three rental schemes. Uh we're working on a big rental project at the moment, which is going to be focused at the sharer market uh called Pocket Together. And it's always within that same space of how can we help people who otherwise will be priced out, whether it's in the for sale market through a discounted market for sale product, rented through the discounted market rental market, or sharers, where we're just bringing that economic cost point down to a level where it's more affordable to them than co-living, which is actually reasonably unaffordable to uh a lot of the folk that we want to try and help.

SPEAKER_00 31:17

And what's the vision behind the together concept? Because I know you you launched that last year.

SPEAKER_01 31:24

Yeah, and we've got our first planning consents coming through on that. Um these are uh uh buildings which will have 200 plus uh three-bedroom uh homes. They'll have some uh one-bedroom DMR homes as well. But the three beds will be all ensuite, have generous living rooms, and will give people the possibility of uh sharing a living room uh rather than what the co-living concept lives off, which is very much smaller uh units, in which there is then public amenity through restaurants and cinemas and uh workout rooms. But that brings with it quite a high service charge and a high cost. What our research suggests is that many, many uh younger people have that one person who they want to live with. The challenge is finding the third. The challenge is finding somebody amongst their parents who will guarantee their lease when they're doing it through the ordinary leasing market. The challenge is that this needs to be a tenure that allows them to experiment with their desire to be in the city without committing to that city for more than a year or two or three. And so we believe that that is a very large market of younger people who and foreigners, uh, not just Brits, who need something which is more flexible. And we think the sharer market will do that. And uh, you know, the idea of Pocket Together is that we will create the conditions through something we already do in the for sale market. We have drinks, we have receptions, we we get people to know get to know each other before they've even moved into our buildings. And we will do that repeatedly within the rental market to give people a chance of getting to know uh others who want to move into the building. Obviously, it brings with it a certain level of responsibility. We will take that very seriously, but we are aware that last year the majority of uh rental leases that were signed, the majority were sharers. So it's going on anyway. What we want to do is codify it uh and turn it into a proper use class.

SPEAKER_00 33:38

And where are the first units going to be?

SPEAKER_01 33:41

Um so we've got something coming up in in Lambeth, uh, we've got something coming up in Walton Forest, and uh we're looking at a a number of other boroughs with whom we want to work. But you know, we're also trying to do it the pocket way, which is you know, don't run before you can walk. Demonstrate that this is successful, get people to kick the tires, and and and then we're very lucky that we've got a brand that attracts this cohort very naturally. And so there are there are, as per usual with this idea, and indeed our previous ideas at Pocket that we've executed on, there are no demand constraints. The constraints are all supply-based. And it's been fascinating to see the city and the politics in the city shift ahead, you know, always a little later than one would like. Um, but certainly we're now in a place where much of what we are proposing gets the ready nods from politicians saying, Yes, we can see that that is sensible. But they want to know that we're going to do it well.

SPEAKER_00 34:43

And are these slightly to be new builds or are you able to convert? Yeah.

SPEAKER_01 34:47

No, they're all new builds. And I think, you know, we have a very aging Victorian housing stock in London. It's very wonderful if you can afford to buy one of these because you can, you know, flexibly renovate it to your heart's content. Most of these buildings are not great buildings to uh repurpose for what I would call concept development. And we are a concept developer. We have we have very clear ideas about what the design of a building should look like, how it fits together. And you can't really do that through the refurbishment market.

SPEAKER_00 35:20

And you obviously mentioned related owning the business. And I just wondered, I know they bought 50% of the business, and then two years later they they bought the remaining 50%. I mean, did that alter the direction of travel for Pocket?

SPEAKER_01 35:34

Aaron Powell I think related made it possible for us to consider things that we wouldn't have been able to consider otherwise, like for instance doing rental and keeping things on our balance sheet a little longer before selling it into the institutional market. So that's been very welcome. Um they've been very supportive. The last five years have been cruel and gruesome for most developers in London. Uh, and they've stood by uh our side uh and they are an ambitious business. Um so there's much to gain and learn from having them in the midst, but they're also very, frankly, respectful of the way in which us Brits do things. And sometimes they shake their heads and they wonder why we do the things that we do. Uh, but uh they've been good partners.

SPEAKER_00 36:18

So, Mark, one of the one of the things I wanted to um ask you about was um the use of modular construction, because I I know uh Mapleton Crescent and um other projects you did use modular off-site construction. Since it it hasn't somehow hasn't really worked so far in this country, I just wondered how how you found that.

SPEAKER_01 36:41

I was a very enthusiastic adopter of modular, and by modular that we used, I mean heavy gauge, steel, volumetric, uh, rather than timber panelised or anything like that. We were very lucky in the relationship we struck with Don Ban, now called Vision, uh, an Irish team that set up in uh Bedford and have taken modular to really good heights in this country, literally as well. We built with them what was for a while Europe's tallest modular tower at Naples and Crescent in Wandsworth, a building I'm terribly proud of because it looks fantastic. It's got a fantastic green ceramic uh facade and and actually uh is a very good use of modular or a tiny site, actually, one of the smallest sites we've ever built on. You couldn't have got scaffolded on there to do a conventional site. And we built the shaft and then used a crane at the top of the shaft to hoist in the modules. Um and and you know, it delivered um within that magic of being a third faster than conventional, and that's been my experience when modular is done well. The problem you've got as a developer is that when you contract with a modular provider, you're essentially handing over the keys, lock, stock, and barrel. If uh on a conventional site a bricklayer doesn't show up or uh uh a chipie doesn't show up, you can replace them. Nearly always costs you more, but you can replace uh subcontractors with modular if they don't show up in the way that you expected contractually, then you're you're stuck and you're in the hands of some very limited processes that you can use in this country in order to get the satisfaction that you need. And my uh analysis of the problem is that modular tends to be driven in the UK by developers who come up with their own solution to uh MMC, model methods of construction, rather than utility providers of, if you want, factory providers of a modular solution. As a result, what they tend to price, because they are at heart developers, is the market rather than the product. And because a pocket flat is a pocket flat, is a pocket flat, it was always the same. I could do comparisons. And we we became at one stage the most active end user of modular in London and the Southeast. I would say to these guys, you know, why is it that 18 months ago that same unit cost this and today it's costing that when steel prices haven't gone up and concrete prices, we know why is that? And they they sort of look at me and say, Well, but the market's up. And you didn't want that. What you want your modular provider to do is to price the product, not the market, because that way you can rely upon the utility function that a factory should be providing you with. You know, modular is only ever 40-50% of the total build cost. You've still got all the cladding, all the landscaping, all the services, all the finelance costs. So it can make a difference to your overall cost plan, but reliability is absolutely key, and predictability is absolutely key. And I didn't feel that the industry was delivering that. And then, of course, we then went through a phase where far too much money was thrown at uh factories that were over-automated. Related and pocket worked very closely together over a period of a year to try and come up with the ideal factory. And what we learned from that experience was actually you want it to be reasonably low tech to start with. You build the tech and the automation over time gradually. But, and here's the challenge, Susan, even with our pipeline of the same product, you know, all these, if you want for beetles that the councils wanted from us, we couldn't assure ourselves that our pipeline was predictable enough to make a factory hum. And that brings me to the final problem with modular in this country. And I've written papers for the government on this. I think what the government should do is uh help guarantee or underwrite, financially intervene in the creation of a bunch of modular factories around the country, which, a bit like the car industry, all have the same chassis. And what I mean by that is that you can repurpose that chassis for different types of end product, whether it's uh student or retirement or uh normal residential, you build off the same platforms, and maybe you have two or three or four different chassis. The advantage of that is that it means that if one factory has problems, you can move to the next factory and the chassis is the same. You don't have incompatible systems. The other advantage of government getting involved in this is that you can sign into the final product with a high degree of building leg and design deliverability, so that you can say to the planning system, if it is a module X from factory Y, you don't have to discharge those conditions, they are automatically discharged. Now, think about what that means for the end user. It means that the time advantage, because it tends to be a time advantage rather than a direct cost advantage of modular can be preserved. Or think about it differently. If you use modular today, there's a risk that your Section 106 takes 12 months, uh, that discharging the conditions takes months and months and months. So you've used modular to gain time advantages that you then lose in the planning system afterwards. So I think if we had a state-sponsored modular platform financially and with planning built in to a certain extent, don't take it away from the local authorities completely, but to a high degree enshrined into that product, discharges, you will be able to give the people who use modular a planning advantage. And I want people who use modular to have a planning advantage, which is if you use these modules, you will get your Section 106 signed off within X weeks. Now, if you were to do that, whether it's steel gauge or timber frame modular delivery, you will engender a huge revolution in the delivery of modular housing in this country. And I'll leave you with this fact 80 plus percent of housing in Scotland is timber frame panelised. Um, less than 10% is timber frame panelised in England. There is no reason for it. It's entirely cultural. If the government were to get its head around it, and I look at homes England in particular to do this, we could transform the delivery of housing in this country over a matter of five to ten years. But what you need to do that is a government that has an industrial strategy. And as far as I know, so far, I have not yet come across a government in this country that has an industrial strategy.

SPEAKER_00 43:36

Presumably, something has got to change because we don't have the craftsman to continue to build in the traditional way. We've got to find a way of making MMC work.

SPEAKER_01 43:47

Yeah, I agree. I mean, uh this is a country that can do extraordinary things when it's got its back against the wall. I mean, you know, the Spitfire, uh, the Smog Act, the NHS, uh, the London Olympics in 2012, uh, which I didn't think were going to be. Capable of being pulled off. So we can do these extraordinary things. But as my friend Emma Carriaga once said, until uh housing is a number one item on the list of Cobra in number 10, I don't think we're going to see the changes that we need to see. You know, I think this government has done a lot of good things to free up planning. I think it's done a fair amount to empower Homes England, but it still feels to me all a little slow. I'm sorry that we were not able to get government to run in with its deep plans for planning reform and Homes England reform within weeks of becoming elected. I still don't understand why all that effort went into winning an election rather than preparing for what you were going to do with the win. But that may sound a bit too critical. There's good work going on. Homes England is very ably led now. I think Amy Reese is doing a fantastic job. But the structures within Homes England remain, I think, ones that need to be oiled. I think the British Housing Bank is going to be very helpful to that. I think Simba Central will be a very good CEO of that. So there's a lot to look forward to. But, you know, the problem with housing always is you need three terms of government, not one term of government. You know, it's it's a 10 to 15 year cycle in which your local planning authority and lots of ministerial intervention tends to be looking at the electoral cycle over the next 18 months, two years. You know, you don't want that. And so that brings me to a final point that's become a bugbear for me, which is how do you make housing boring? How do you make housing politically something that the politicians don't feel they have to do anything much about? And the only way you can do that, in my view, is to hand it over to the civil service more. You need to empower the civil service, you need to fund the civil service properly, local authority upwards. They are all underfunded. And you need to have national, regional, and local plan making that locks together in such a way that you have a 10-year plan about which the politicians then can say to Susan and Mark, when we're being nimbleys and knocking on their door, I'm really sorry, that was signed off in the 10-year plan. Uh there's nothing much I could do about that. We need to depoliticize housing, either through much better plan making than we do at the moment, and I think Matthew Pennycock has really got that and worked on that very effectively. But there is a perennial problem that we'll never be able to sort out until we absolutely grapple it, and that is to get rid of first past the post and move towards proportional representation. This is a separate subject. I'm very happy to talk about it if you want, but but certainly our electoral system gets in the way of good planning.

SPEAKER_00 46:42

So you also touched on the point that it is a particularly difficult environment for developers at the moment. And um I wondered whether you had any particular views on the emergency measures that uh the London Mercedes Khan has recently introduced and whether they are going to be able to unlock new supply.

SPEAKER_01 47:04

The evidence is that for people who already own land, it will. And I chair a meeting with Neil Jefferson at uh HBF with the CEOs of the main developers in London and the Deputy Mayor, and we've had the minister as well, and and the evidence is that this will make a very positive contribution from people who already own land. I don't think it will do as much as we would like, as quickly as we would like for the SME sector. And I think one of the big messages that I always leave in these kind of talks is until we have an SME sector that performs to what it used to perform to, you know, in 1939, 60% of housing was delivered by the SME sector. Today it's less than 15%. You're not going to be able to get to 300,000 homes a year or even 200,000 homes a year unless you get a more thriving SME sector. So I think these emergency measures are welcome. I think that they should have been enacted within a week of the government winning the election because all the signs were already there that the industry was on its knees. The viability regime of the GLA and national government uh from the sort of period of 2014 to 2020 was wholly inadequate to the economic realities on the ground. And that took too long to address. So I'm very glad that ministers and the mayoralty in London did grapple with it eventually, but it could have happened faster. The signs are good that a number of these uh emergency measures will filter through into the forthcoming London plan. We actually really need to develop some trust between the politicians and the developers. I think that's one of the fundamental challenges that we've always had, where there is a generation and frankly, also just a category of politician that looks at a developer and says, I don't believe a word of your what you're saying. You know, you're there to shaft me. And that's an incredibly unhelpful attitude to have when you're also taxing development for your affordable housing product. So you're setting yourself up for a difficult relationship. I don't think the developers come out of this smelling of roses either. Uh, I think many times they they don't help themselves. But I do not know of any developer who goes into development in order not to deliver development. They're not land hoggers. They want to build. That's why you do this job. You because you want to deliver something. And I think we should have a much more respectful relationship between the politicians and the developers. And I'm afraid it does start with the politicians.

SPEAKER_00 49:47

And do you think the politicians understand the sort of viability question? Obviously, as a developer, you would say, look, this development no longer makes sense. You know, it's it's not viable. Do they?

SPEAKER_01 49:58

Well, I I I I I I don't think that there is I think I think ministers, I mean, Matthew Pennicott absolutely gets it, and previous ministers also got it, but uh the structures are not in place yet for open, transparent transfer of knowledge and information from the housing market to the ministers so that they have a forward look on what actually is coming their way. I think that the ministers, Treasury as well as MHCLG, should have a panel that advises them that you know, doesn't go in to complain about the planning system or you know, the fiscal levers or no, it's there to advise ministers, particularly the Treasury, on what's happening in the bond markets, what's happening in the money markets worldwide, and how is that going to impact the delivery pipeline of a Barretts, a Barkley Holmes, all the way through to a pocket. Because if you do that and you get that information, you will be 12 to 18 months ahead of the market. I mean, I used to say as a banker, if you want to know what's going to happen on the inflation front, call a couple of contractors and developers because they'll tell you what's going to happen on the inflation front 18 months before it's happened to Joe Joe Public. So unless the Treasury and Ministerial team at MHCLG moves away from the one-to-one relationship with the boss of one or two large development companies who will, you know, of course be knocking on the door endlessly for help to buy three, help to buy four, help to buy five. And, you know, there's some some cause for saying that we need those kind of uh interventions. But really, what we should have is a relationship of deep trust between the developers and the politicians on what's happening on the ground economically. And I just don't think that as a country we've sorted this out at all well yet. So the tendency tends to be, well, you say that, but I'll just watch what happens. Well, that's what happened with the London last London plan when the viability tests were screwed up to a level that was just not deliverable. And I remember then talking to the then deputy mayor saying, it's not going to work. And he said, Well, it's a very strong market. I said, Yes, but it's not always going to be a strong market. And when it stops being a strong market, it will fall off the cliff, which is what's happened. Could that have been avoided? Yes. Better politics would have avoided that, a better understanding of the macroeconomics. I do think that sometimes the politicians don't really understand the macroeconomics properly, particularly at local government level. And I think developers should do a better job, frankly, at communicating this stuff and opening themselves up, particularly given that we're meant to be working in partnership. I mean, you shouldn't be a developer if you don't think you're working in partnership with local authority, because you're there to deliver some of their affordable housing output. Well, then play it by the open book that you need and don't try and play games. So I I think we are a long way off culturally from getting to a better place. I'm hopeful that Homes England, by putting more focus on how to help SMEs financially and through the planning system, might be able to make a big difference to that. But it's going to take time.

SPEAKER_00 53:02

And do you think, just looking at how things are at the moment, that the traditional model of home ownership is still going to work for the next generation?

SPEAKER_01 53:12

I think that we are always going to have at our inner core the desire to own our own home. I think that's a very British thing. I do believe that there is a generation coming through for whom that is such a distant dream that they will become renters and remain renters. I think we will professionalize the rental market as a result. I think, particularly in inner cities, it'll become more of a rental market rather than a for sale market. There's a lot to be said for that. But there's a very big but. You can only have long-term sustainable rental markets if you have low inflation. The reason why the Germans have a sustainable rental market is because they live through the horrors of hyperinflation in the 20s and the 30s. And the deal that the average German has with his politician or her politician is you will never ever in my lifetime create inflation at that level again. If you believe that your politician won't create inflation by printing too much money or staying out of the uh euro, which is what this country did, then uh you can afford to rent. Why would you own? It's not going to go up in value that much. So you might as well rent. Have better holidays. If you believe that your politician has a tendency, a predilection towards creating inflation, stoking it up whenever it suits the political process, you're going to buy because that's your insurance. And I think that the jury's still out. I think Rachel Reeves actually has done a solid job in creating that fiscal stability with which to target low inflation. And I think that's being more of a mantra. But I would just note that under the Johnson administration, we were printing money like nothing else to supposedly uh cover COVID costs, uh, although much of it going into unneeded PPE. And I would also note that we are even more on the world stage alone, being outside of the EU and not being part of the monetary uh structures, which in the long term would give me more confidence that we're not just going to put on the printing presses when it suits us.

SPEAKER_00 55:23

Interesting. And at the moment, obviously, institutional bill to rent is, you know, is coming, but I mean there are not that many units built yet. Private landlords, you know, seem to be leaving uh the market. So, you know, are we going to have enough rental property for people that need it?

SPEAKER_01 55:41

Yeah, I mean, I think the local authorities are really doing their bit and waking up to the fact that there's more of it that is needed. And so I, you know, had a very good conversation with the leadership team in Ealing the other day. They get it. I think there's a lot of Walton Forrest absolutely understand this. There's a lot of good work going on. And actually, if I if I if if I just come back to something which we were going to talk about, which is the naming of housing, I think it would help politicians and developers enormously if we renamed what we call things. I think there are three markets. I think there is uh the open market, I think there's social housing. And we all know what social housing is, and we need more of it for families at deep discounts, and we know what the open market is. But between social housing and the open market, we need to create something called affordable housing. And for some people, that's intermediate rent, for other people, that's shared ownership, for other people, that's co-living, for other people, that's share units, and the planning system needs to adapt much more quickly than it has in the past to all the varietals in the herbaceous border that you need between these two experiments in order, going back to the beginning of our interview, to create that middle market that ultimately is there to balance between the social market and the open market. And that balancing wedge at the moment doesn't exist. So, you know, will we move more and more towards rental? Yes. Uh, will the institutions do more and more of it? Yes. But we do need a political and planning environment in which that becomes more possible. But there is a price, and the price we pay for it is that it means that we cannot play politics with those markets. We have to give those institutions that are making 20-year bets on rental returns the environment in which it makes sense for them to make those 20-year bets. And that means we've got to keep inflation low. And we certainly can create rental charters and look after renters. We need to look after renters so that they're not duped by bad landlords. But we need to be very careful how we talk about rent caps, rent regimes, rent management, because you can spook these capital markets very quickly. And if there's one thing that this country needs to get better at, is to understand where it sits within the world capital markets and needs to understand politically and economically that we're a very small boat in a very big sea, and international money can move out very quickly. So if we don't make it possible for international money to attract itself to the UK, or we play too much with their expectations, we will not get the built environment that we need.

SPEAKER_00 58:26

Good advice, Mark. Thank you very much. And I think I think it's probably a good place to stop. So thank you. Thank you so much. That was really interesting.

SPEAKER_01 58:34

It's been a complete pleasure. And uh it's been wonderful working with and alongside you over this long time. You've been a fantastic support to an industry that quite honestly sometimes needs that that socializing skill and and frankly oversight that you bring to it. So thank you.

SPEAKER_00 58:55

Thank you so much, Mark, for talking to us about Pocket and for your candid thoughts on the housing market and much more. So that's it for now. I hope you enjoyed today's conversation. Please join us for the next Property Sheet Podcast interview coming soon. The Property She podcast is brought to you by Mishcon DeRea in association with the London Real Estate Forum and can be found at Mishcon.com slash property she along with all our interviews and programme notes. The podcasts are also available to subscribe to on your Apple Podcast app and on Spotify and whatever podcast platform you use. Do continue to subscribe and let us have your feedback and comments, and most importantly, suggestions for future guests. And of course, you can continue to follow me on LinkedIn and on Twitter at PropertyShe for a very regular commentary on all things real estate, Prop Tech, and the built environment. See you again soon.