NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, June 3, 2011

Mumbai, India: LAST summer, a business professor and a marketing consultant wrote on The Harvard Business Review’s Web site about their idea for a $300 house. According to the writers, and the many people who have enthusiastically responded since, such a house could improve the lives of millions of urban poor around the world. And with a $424 billion market for cheap homes that is largely untapped, it could also make significant profits.

The writers created a competition, asking students, architects and businesses to compete to design the best prototype for a $300 house (their original sketch was of a one-room prefabricated shed, equipped with solar panels, water filters and a tablet computer). The winner will be announced this month. But one expert has been left out of the competition, even though her input would have saved much time and effort for those involved in conceiving the house: the person who is supposed to live in it.

We work in Dharavi, a neighborhood in Mumbai that has become a one-stop shop for anyone interested in “slums” (that catchall term for areas lived in by the urban poor). We recently showed around a group of Dartmouth students involved in the project who are hoping to get a better grasp of their market. They had imagined a ready-made constituency of slum-dwellers eager to buy a cheap house that would necessarily be better than the shacks they’d built themselves. But the students found that the reality here is far more complex than their business plan suggested.

To start with, space is scarce. There is almost no room for new construction or ready-made houses. Most residents are renters, paying $20 to $100 a month for small apartments.

Those who own houses have far more equity in them than $300 – a typical home is worth at least $3,000. Many families have owned their houses for two or three generations, upgrading them as their incomes increase. With additions, these homes become what we call “tool houses,” acting as workshops, manufacturing units, warehouses and shops. They facilitate trade and production, and allow homeowners to improve their living standards over time.

None of this would be possible with a $300 house, which would have to be as standardized as possible to keep costs low. No number of add-ons would be able to match the flexibility of need-based construction.