Home Swede home: A new 'village' on the 2012 Olympics site is to be designed by Ikea

It doesn't look like much: a collection of old factory buildings on a muddy site near to the Olympics in deep east London, close to dusty, arterial roads and one of the less celebrated reaches of the river Lea. But it is here, at Sugar House Lane in Stratford, that Inter Ikea, the investment and construction arm of the Swedish furniture giant, has bought a 13-acre site. Within the next few years, Inter Ikea will have built a mixed-use development consisting of office and retail space as well as lots of Ikea housing – some 1,500 units or so – and it has already started working on a master plan for the site.

Peter Andrews, the chief executive of the London Thames Gateway Development Corporation (LTGDC) , says that he fully expects it to become "a Covent Garden in the East End". A retail, housing and leisure hub abutting the Olympic Park, this Ikea village will be one of the things making the new East End a place in which people will be proud to live, as well as a tourist destination to die for.

It's a vision that excites or grates, depending on your feelings about the Swedish retail temple. But it seems to be a direction that the housing market is going in. The Inter Ikea site follows on the heels of a recently approved Tesco development in Bromley-by-Bow with 450 flats, a primary school, shops and hotel, which has been called a "supermarket suburb": itself one of a handful of Tesco housing sites in Dartford, Kent; Streatham, south London; and Woolwich, south-east London.

It also shows a global move towards new players coming from retail into the housing market. Muji has done a development in Japan. This has attracted criticism from pundits such as Sir John Sorrell, a past chairman of the Commission for Architecture and the Built Environment (Cabe), who said: "Retailers don't just want to build a new supermarket nowadays. They want to redevelop town centres, with housing and shopping streets." This, he proposed, was not a great idea and one can see why: Tesco and Ikea's retail architecture doesn't exactly give one hope.

But then again, Inter Ikea's involvement in the British housing market is a remarkable addition to a go-slow, new-build market full of mock traditional boxes – all pitched roofs, "leaded" windows and fake chimney stacks – and here, next to the Olympic Park (the news luckily coincides with the beginning of the two-year run-up the Games), it's bound to make a splash.

"We're pleased that investors like Inter Ikea are investing in the district," says a spokesman for the Olympic Park Legacy Company. "We're going to leave 8,000 to 10,000 homes in the Olympic area, and this development [which is outside the Olympic Park] will add massively to the destination."

It'll be a great place to live, he reckons: one of the best in London. "After the Games, there'll be all these facilities, and you'll be able to swim in the Aquatics Centre, left by the Olympics, or go and see Cirque du Soleil in the theatre."

To go from your Ikea home for a swim in a Zaha Hadid-designed swimming pool does indeed sound like a fantasy for those of bracing modern mien.

To others, a development sounds like the flat-pack nightmare to end them all, conjuring visions of flimsy homes built by Allen key. But Inter Ikea may well bring a bracing new vision to the British housing market, which is often castigated for being backward-looking, and criticised for being dominated by half a dozen large and conservative construction firms.

"It's fantastic news," Peter Andrews says. "They paid a sensible price [the site was bought from the receivers, after having dived with the previous owners], it's their first foray into the London market, and they're the right people to work with."

Inter Ikea is itself being rather tight-lipped about the development, which is going to take pole position near the VIP entrance to the Olympic Park on Pudding Mill Lane and Stratford High Street. It's also close to the area's one big heritage prize: the Three Mills Film Studios, which has 18th-century buildings and will be one of the chief Olympic landmarks.

But what will it look like? Well, probably Ikea-ish, with lashings of blond wood and primary colours, with bracing, pop-modern Scandinavian cheer. It's hard to say, exactly, as no plans have been released, but Peter Andrews, who has been privy to discussions, expects them to display, "the ethics of Ikea. From what I've seen, they're going to be different to the high-rise-dominated plans that were up before."

The previous proposal for the site, designed by Levitt Bernstein, would have been capped by a 158.8m tower. Now we should expect six-storey flats with live-work developments – with around 35 per cent being "affordable" – plus space for the creative industries and landscaping. The river Lea will also be a feature, as it runs nearby. "It's a fully fledged piece of place-making," Andrews says.

The Inter Ikea development also shows a willingness to come into an area that has traditionally scored highly on the deprivation index. East Thames and Southern Housing are supporting the development, and the announcement is timely, as the London Plan – the huge planning document, produced by the Mayor – has just been at inquiry, bringing extra scrutiny to the future of London, particularly in terms of such issues as affordability and provision of housing, as well as sustainability.

That Inter Ikea is a foreign investor is salient, suggests Andrews. Sugar House Lane is part of the deep industrial East End, which has suffered from a perception problem with UK developers. "This sale indicates that outside investors don't have a negative idea about the East End, and don't come in with an inbuilt prejudice against it," he says.

Other companies investing in the area include Westfield and Lend Lease, which are both Australian, and the French developer Bouygues was recently appointed the preferred bidder at the £500m Canning Town and Custom House regeneration scheme.

Does it really indicate a move away from the handful of big builders that dominate the UK housing market: the Barratts, Berkeley and Bellways, Crest Nicholsons and Persimmons? Not necessarily, but it might indicate a new construction model that will hopefully benefit house-buyers, particularly first-timers. "The orthodox UK house-builders rely on off-plan sales for finance, and that's pretty tight right now," Andrews says. "Inter Ikea and other builders with long-term capital can come in with a bit of a vision."

So expect the Inter Ikea development to pique interest among other newer house-builders – and also expect the company to look elsewhere in the UK for residential opportunities. The company has already been busy abroad with regeneration schemes in Poland, Luxembourg, the Netherlands and Germany.

It's not the first time Ikea has become involved in the UK housing market. Two years ago, it attempted to enter the residential market in Hillingdon, west London, with a 19-floor building opposite Hillingdon Tube station. It failed, but more successful was a village of prefabricated Ikea houses (with partner Skanska), called BoKlok, built in Gateshead over the past few years. They attracted all manner of jokes about flat-pack housing, and indeed, they are built from prefabricated sections which can be erected very quickly. Despite the critical noise, as of last autumn, all the Gateshead BoKloks were fully occupied, and the company is looking for more UK franchisees.

Cheapish and cheerful, the BoKlok homes are unfussy, white with wooden cladding, and although the Ikea spokeswoman says the Inter Ikea flats won't look like them, their honest, modern style will likely be resplendent at Sugar House Lane.

The Hillingdon development would have had the corporate branding of Ikea, which, the spokeswoman says, will not be the case in east London. "The Inter Ikea property group is not involved in any shopping-centre or Ikea store developments and the Sugar House property would never accommodate a shopping centre or an Ikea store," she states. So don't necessarily expect to see the love-it-or-loathe-it blue and yellow livery of Ikea beam out as you watch the Olympics. And yes, if you want to bring in the chintz, it's up to you. The English person's Ikea home is his or her castle.