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Competition Framework: How to Provide Affordable Housing

By Ashoka Staff

Housing is a basic human right and a primary foothold to the climb out of poverty. Yet the prevalence of homelessness in virtually every country in the world suggests that providing this basic necessity requires addressing complex and interrelated issues. A months-long study of the work of Ashoka fellows and other innovators has produced a mosaic graphing both the barriers to housing for all, and the solutions that have garnered significant success in the field.

Barriers

Dearth of complementary goods (e.g., land, infrastructure). Whether it is shortage of land in shanty slums, or inadequate roads to transport building materials to rural locations, the lack of the basic components of housing is a key issue to overcome. Creatively addressing this issue often means a fundamental shift in thinking around property ownership and the supposedly "fixed" nature of physical assets and materials.

Low individual purchasing power. Those living in poverty often do not have the funds, or access to even simple bank services, to make home purchase or building possible. Aggregating their resources, or expected income over time, however, can reposition this group as a desirable customer for even commercial banks.

Limited access to housing finance. Commercial banks and traditional means of housing finance typically do not serve low-income populations, whose income may be variable based on crop seasons, or below what is seen as a viable threshold to ensure repayment, and who rarely individually have the resources to provide collateral for loans.

Inadequate current product offerings. Mass-built housing development for the poor often results in poorly designed shelters built of materials that are environmentally unsound and unsuited to climate conditions. Creative use of local and "waste" resources, as well as the inclusion of communities themselves in the design and planning, can lead to more appropriate solutions.

Principles

Enable long-term investment

Low-income individuals manage a delicate financial balancing act every day to survive. Making it possible for them to undertake long-term, large investments (or successive short-term investments over long periods of time) requires ensuring the right economic incentives for them, as well as addressing more psychological aspects such as their ability to plan for the future.

Precarious and insecure living conditions heighten the financial risk of any investment occupants might otherwise make in their homes. In an attempt to break this vicious circle, the municipality of Sao Paulo's Bairro Legal initiative succeeded in providing secure tenure to more than 45,000 families through a comprehensive program from 2001 to 2004. Services included conflict mediation between land owners and squatters, assistance for legal acquisition of land directly and through partnership with the local Bar Association, and microcredit through Brazil's largest private sector bank. Another innovative market-based initiative that has enabled slum dwellers to build assets and climb the financial ladder is led by Darin Gunesekera from the Wiros Lokh Institute in Sri Lanka. Darin has started a variation of a stock exchange market to raise funds for the construction of new dwellings for poor families who are entitled to certificates to purchase a new home of their preference. This has changed the practices of developers who need to compete for the preferences of the poor. Low-income families can voice their preferences and gain confidence to invest their resources in home improvement.

Unlocking some of the psychological barriers of low-income families to build a better future is the other side of the coin. Slum Dwellers International, a global network of squatter groups started by several social leaders (including Ashoka Fellows Samsook Boonyabancha and Joel Bolnick respectively in South Africa and Thailand) that counts a total of 5.6 million members in 14 countries has defined its programmatic priorities based on people's aspirations and devised several strategies to enable action and problem-solving among their beneficiaries. These include visits between members from different neighborhoods, cities, and countries in order to encourage learning through real life experience, as opposed to formal education, and generate empowerment. The visible achievements in home improvement are another powerful element to demonstrate that change is possible. Demonstration houses are used to trigger discussion and joint decision-making about design, construction materials, and processes.

Leverage resources that are abundant at the local level

Many of the barriers to housing for the poor require political, or at least multi-stakeholder, solutions—for example, securing land, modifying property rights regimes, or convincing electricity providers to serve a settlement. Social capital is probably the greatest asset of low-income communities who can achieve much by joining forces. This is precisely the key breakthrough of microcredit that replaced traditional loan collateral by social collateral. The South African Homeless People's Federation (SAHPF) is an example of a truly community-based organization designed to be inclusive for the very poor. It uses collective action as a core strategy to strengthen communities and enable them to initiate and manage changes in the areas that they have prioritized such as housing. The core strategy to organize communities is the creation of daily saving groups whose members, mostly women, learn to trust each other and build a discipline. Saving groups are then federated at the neighborhood, regional, and national levels.

More generally, there is a great potential in enabling low-income communities and individuals to become self-reliant. The movement of "mutirões" that started in Brazil and other parts of the world in the early 1980s is based on individuals who come together after work and during weekends to construct their homes and neighborhoods through mutual self-help projects because they are unwilling or unable to rely completely on the state. Despite the fact that this process takes longer than using professional full-time constructors, this approach enables them to reduce costs and effectively teaches self-management and other administration skills to the community. Another initiative that illustrates this principle is ADAPT in Egypt led by Hany El Miniawy. It leverages locally available materials as a substitute for conventional construction materials as well as ancient building techniques that are more adapted to weather conditions and culture, given the limited resources available.

Leveraging the productive potential of low-income communities that can access the inputs needed for success is an important strategy that enables them to increase their purchasing power. YKPR in Indonesia organizes groups of families to apply collectively for credit from the government housing bank that is unavailable on an individual basis and it coordinates repayments on a calendar that accommodates the seasonal nature of incomes. The negotiated credit is "three-way," intended to cover land acquisition, house construction, and income-generating investments to help cover repayments on the loan. The government housing bank now considers them more reliable than its traditional clients and makes additional efforts to achieve customer satisfaction—for example by collecting loan repayments at customers' doorsteps. Although the model was initially developed for rural areas, the principle is applicable to urban settings.

Radically lower the cost of the whole housing delivery process

Thinking holistically about how to make the overall housing transaction affordable to low-income households rather than reducing the cost of individual components such as cement or labor is critical. Saiban in Pakistan is a remarkable initiative that makes the overall housing transaction affordable and convenient for low-income households by leveraging the benefits of informal housing processes. The organization finances the purchase of unserviced plots of land, and leaves housing and infrastructure to be developed incrementally as each household accumulates the money to pay for them—as occurs in the informal sector. While leveraging informal processes, the organization also improves on them by providing secure land tenure and organizing residents to plan and negotiate for additional services. Security in Saiban settlements is higher; costs of living are lower; and services are obtained years faster than in comparable informal settlements.

Radical cost reductions can be achieved by streamlining the whole process and switching some of the costs and responsibilities to clients—an interesting parallel with the Internet revolution that enabled many companies to rethink their business models by putting customers and partners to work thanks to the Internet interface. Other strategies to increase the profitability of distribution in slums and rural areas include multi-purpose distribution channels and demand aggregation. Examples from other industries such as e-Choupal, an ITC-led initiative for small farmers in India, could inspire innovations in housing and building materials. With regards to housing finance, Grameen was one of the pioneers and has already enabled the construction of over 600,000 houses in Bangladesh. Unlike other financial institutions, Grameen ventured into giving housing loans based on the philosophy that investment in shelter for the poor is productive. Its strategy for providing housing microfinance profitably uses the same organizational infrastructure that it uses to make income-generating loans, and restricts eligibility to clients who have developed successful credit histories for four years to reduce risks associated with housing loan products.

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