Housing Series: The Case for Bundling Housing Finance With Housing Support Services
(Above image: Concrete pillars are loaded for transportation from a Bangladesh Habitat Resource Center to nearby home sites for rebuilding after Cyclone Sidr, 2007).
Editor’s Note: The following post is part of NextBillion’s month-long 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. This post is the second of two parts on Housing Support Services. Part one may be found here.
Studies suggest that between 20 to 30 percent of microfinance institution (MFI) clients use portions of their small business start-up or production loans for housing improvements. While MFIs see this as “leakage” for non-productive activities, “productive housing” should be viewed as both a livelihood strategy as well as asset creation – especially in urban settlements. Home-based industries and small businesses are often run from a family’s home and in many cases a spare room for rent is itself a livelihood strategy for the family. Deferred maintenance can also impact health and have a negative impact on productive work days outside of the home.
Families prioritize home improvements for a variety of reasons, providing a cost effective opportunity for low-income financial institutions (LIFIs) – MFIs, Credit Unions and Cooperatives, Village Savings and Loans, etc. – to provide value-added bundled services.
Distribution channel at scale
LIFIs have the distribution capacity at scale to connect households to the HSS information, knowledge and construction technical assistance needed to improve incremental housing improvements in health and safety. In Nepal, for example, action literacy programs have reached over 100,000 clients in village savings groups and cooperatives. By adding an additional home improvement reader to their current literacy series, accelerated impact has been achieved.
(Above: Members of a savings group in rural Haryana, India, meet to repay loans and discuss more community projects including housing microfinance options).
Linking community based HSS resources
In many countries Habitat for Humanity (HFH) has partnered with LIFIs to provide disaster resilient construction and financial education as a part of a bundled housing finance package; often delivered through Habitat Resource Centers. These technical support service centers are demand-driven local networks supported by HFH and provide HSS at regional and community locations as well as in disasters, through mobile training units and temporary facilities. A full range of non-construction services can also be provided. In Chile, HFH provided legal assistance for land tenure and permit processing, enabling households to access government housing subsidies.
Other services that HRCs can bundle with housing finance providers include:
- market information on local material suppliers and service providers,
- link vendors and suppliers to potential clients
- information on integrated service providers where for example, masons acts as architect, engineer and materials supplier
- home improvements demonstrations to showcase cost-effective technologies.
- Leveraging small business and livelihood development into a provider network. Examples include small family businesses training and certification of masons and skilled workers, linking them to housing finance clients
Web based HSS Knowledge strategies
Based on demand from LIFI networks, HFH will pilot e-services through web-based “beehive centers” across India that will build on existing financial education modules. New e-knowledge products include “tech sheets” with basic construction information previously provided through the local HRC network model, and now digitized for an e-knowledge platform.
Global peer learning program
Based on these early successes, HFH launched a three-year, multi-country global learning initiative to identify best practices and develop sustainable business models for demand-led HSS. This initiative kicked off with a global workshop in Nicaragua to learn from Prodel, a housing NGO globally recognized for their high quality HSS. Prodel’s financial partners charge client-level fees tied to their housing finance products for construction technical assistance. Their research shows that HSS divide into three categories, each with different HSS options, service providers and cost structures:
- Level 1 – Non-skilled maintenance and repair – requires basic written and graphic handout materials on topics such as how a homeowner can hire and oversee a contractor, access to HSS information in the community or over the web, and disaster resilient construction tips where appropriate.
- Level 2 – Skilled support services – require a trained mason or carpenter, electrician or plumber, but are not technically or structurally complicated projects.
- Level 3 – Complex projects – require structural work that should be planned, executed and overseen by trained technical experts, such as adding an additional floor or house extension in a high hazard zone.
Interestingly, Prodel found that;
- Level 1 represented nearly 80 percent of their loans and that Non-skilled HSS were sufficient to produce higher quality affordable improvements
- Level 2 represented 18 percent of loans
- Level 3 represented only 2 percent of loans requiring complex technical HSS
If these prove to be globally representative, LIFIs should be able to distribute basic shelter information to borrowers at each level at very low costs, while developing a fee schedule for Level 2 or 3 loans, which are far fewer in number. Limiting services to information distribution reduces costs, reaches all clients regardless of construction complexity and overcomes LIFI’s reluctance to enter what they perceive as a non-core new business.
By bundling HSS with housing finance, we achieve an added community benefit of “making a market” for quality housing service providers. As market demand for their services increases, a full range of local small businesses and fee- for-service providers will develop, increasing the need for skilled labor, wholesale and retail suppliers and construction specialists, providing income for community based organizations who provide HSS to low-income constituents.
Housing Support Services, especially when bundled with access to housing finance, can provide families with the necessary technical and financial information and resources to maximize the impact of housing investments that reduce their risk, improve their health, livelihoods and financial assets.
The lack of safe water and sanitation, high density conditions, poor construction practices and increasing climate change impacts, threaten millions of the most vulnerable urban citizens. Without HSS, the problem of poor construction choices is greater than efficiency or effectiveness. It is now life threatening, as informal settlements around the world become more overcrowded, forcing families to settle in high hazard zones, exacerbating the range of deplorable living conditions.
While some assert that the poor do not appreciate nor pay for housing support services, the experience of PRODEL in Nicaragua, HFH and others suggest that this is not the case when these services are appropriately aligned with varying levels of construction complexity as well as with families’ demands, who understand the financial, health and safety impacts.
If we are to work effectively in an increasingly urbanizing world and have influence at scale, we will need to develop effective sustainable housing support services. Financial institutions are focused on providing financial products. Housing NGOs are focused on providing quality housing. Housing Support Services may be the way that these sectors meet in the middle, providing access to information to 80 percent of the households globally who improve their own homes each year.