Valeria Budinich

Affordable Housing for All – In Our Lifetime

(Above: New home construction underway, resulting from Ashoka Housing For All India coalescing community and builders. Image credit: Ashoka.)

Editor’s Note: The following post is part of NextBillion’s series in partnership with Ashoka focused on affordable housing issues. Please follow the entire series HERE, and join the discussion with your thoughts and insights.

In the coming decade, the affordable housing market could grow to over a trillion U.S. dollars if families simply double the current level of annual consumption of housing products and services. This is a conservative estimate based on the current gap between need and supply, and the increasing migrations to cities’ urban slums. In the process of unleashing this significant market opportunity, hundreds of millions of people would have access to dignified homes, healthier places to raise their families, and more valuable assets they could leverage to transform and improve their lives.

Unfortunately, we will not accomplish this unless we stop thinking one business deal, one company, one client at a time. We need to build a new affordable housing ecosystem, one with the capacity to continue to ramp up the processes and systemic changes needed for the housing industry to offer appropriate products for low-income populations, for enough financing to become available and for the right standards and quality to be in place and incentivized to enable a billion of the world’s population to participate in the housing market as full economic citizens.

Housing for All at Ashoka

Over the last five years, the global Ashoka community and its partners have been building the basis for this transformation in the affordable housing sector. The journey started with a handful of private companies, financial institutions and citizen sector organizations in India, Brazil and Colombia. We recognized that if they collaborated, they could accelerate the emergence of a vibrant and sustainable market for new homes and incremental housing.

In order to fix broken affordable housing value chains, each player needed to move from a mindset where they were competing for a limited “wallet share,” to one in which multiple players – each with different assets to make the wallet actually expand in size – came together in significant and increasing numbers to overcome major obstacles (such as land rights or insufficient capital for mortgages), to co-create innovative solutions (such as bundling financial literacy and self-building technical assistance with new housing microcredit loans), and to enable millions of new clients to have the capacity to act in the formal market as empowered consumers of affordable housing products and services.

Many players in the formal housing industry know that clients need the combination of all these services to satisfy their housing needs. But these services – separately or combined – do not exist for most BOP clients, even for the large proportion of them who have the savings and regular, if undocumented, incomes to be able to repay a housing loan. For the most part, the housing industry has failed to serve these clients either because their needs are invisible to them or because companies have not figured out how to successfully market housing products to BoP populations.

Meanwhile, governments, multi- and bi-lateral development organizations and private philanthropy continue their work apart from business and market forces, even knowing that with the relatively small amounts of money they have to spend on affordable housing, it would take over a hundred years at their current pace to address the existing housing deficit.

Citizen sector organizations play the role of advocates for housing rights and enable communities to organize around their common and individual needs, but their resources are also very limited and rarely they can reach a scale that is consistent with the extent of housing needs.

While all these different stakeholders continue to fail to solve the problem in significant or strategic ways, low-income families continue to self-build and self-finance often sub-standard homes at a significant cost and physical risk to themselves and their neighbors. Housing value chains are indeed broken.

What Breaks This Cycle of Failure?

Most of the basic technology and know-how to serve these clients already exists. The challenge is to mobilize all these stakeholders around a vision of “collaborative entrepreneurship” within the industry and across sectors. Through its Housing for All initiative, Ashoka accomplishes this by building a common vision for the development of the affordable housing industry: one centered on a new interpretation of client needs and resources and their inclusion in various value-added steps along the affordable housing value chain. Operationalizing this vision is about the building a “hybrid value chain” where corporations and citizen sector organizations (and local governments) collaborate to develop the market and build an ecosystem where a new type of affordable housing industry is possible and profitable.

Ashoka’s Housing for All work is anchored on trust-based relationships that BoP populations have with citizen sector organizations – be they an NGO working for years with families on maternal health, financial education, microcredit programs, or small business development – and have a long-term and extensive presence in the community. Thus, they can play useful roles to help BoP potential consumers to increase their tangible assets and savings, and validate their informal wages as regular and sufficient to qualify for housing credit or loans – an often long, costly and unsuccessful process when undertaken by banks.

(Above: The first meeting of all stakeholders in Ashoka HFA India. Image credit: Rajendra Joshi for Ashoka.)

We have experienced citizen sector organizations mobilize the community to talk frankly about their housing needs and costs to make the deal worthwhile for private real estate companies. At the same time, these organizations work diligently to capture rich market data needed for companies and financial institutions to better assess the opportunity/risk ratio, design more appropriate products and services, and make the right links to financing institutions, marketing and delivery infrastructure.

Most of our work leverages local actors, not only to aggregate demand in cost-effective ways, but more importantly, to make visible the client and community resources (such as dynamic local promoters, clients with successful track records borrowing from and repaying on time microcredit programs, skilled construction workers, good relationships with the local municipalities and so on). By seeing clients as part of the solution, new possibilities emerge and the market forces start gaining momentum.

Hybrid Value Chains and Collaborative Entrepreneurship

Ashoka’s experience in enabling cross-sector collaborations has taught us the importance of a common (and hybrid) language from the start, one that speaks with equal emphasis about wealth creation and social impact through market-based approaches.

It has also taught us that, in the initial stages, hybrid value chains are challenging to build because in the very short-term, benefits are less tangible. One needs to carefully choose corporations that value long-term gains and investments, and not only short-term profits. Collaboration requires mutual trust and open communication among partners. And it only makes sense if partners achieve significantly more by sharing their learning and resources. This mutual trust and mindset of sharing is not common among private companies (where most traditional relationships have primarily been competitive). Nor is it alive and well in many citizen sector organizations, which have experienced corporations using them to access clients (often to sell substandard products) with little substantive engagement to learn more about their needs as potential as long-term consumers.

It tends at the start (or without careful facilitation) to be an unequal relationship, where a company behaves like the citizen organization is a temporary outsourcing partner to get necessary client information or a short-term subcontractor to market products to BoP clients. This in turn can lead to mutual mistrust and misunderstanding. Many citizen organizations may not have the management team or business skills to negotiate solid, mutually beneficial working agreements for long-term benefits.

Building an affordable housing ecosystem requires a relentless entrepreneur at the helm of this process. Having the vision is not enough. Succeeding requires someone with the capacity to identify the right partners, help them to build a mutual, value-added proposition and support them through the process of refining the hybrid business framework. Until now, this role has been played by Ashoka teams financed through seed capital made possible by the Hilti Foundation. In the next phase of our work, Ashoka’s efforts will focus on identifying and supporting local entrepreneurs who can tailor hybrid value chain applications to specific conditions in their city and region.

Our Vision for the Future

The ecosystem ultimately requires partners structuring their work as a “team of teams,” all of them operating with an agreed-upon set of goals and the hybrid value chain, inclusive framework as its engine. This type of work is only possible when all participants commit themselves to “tear down the walls” that historically have separated those working on wealth creation from those addressing social impact. At Ashoka, we believe that in order for affordable housing to surpass the trillion dollar annual market level, all actors involved — from builders and housing materials corporations, to bankers and investors, to citizen organizations working in local communities linkng potential consumers to the formal market — need to see themselves as changemakers who, together. are making possible the global transformation of the affordable housing industry.

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Finance, Uncategorized