Housing Series: Establishing Quality Standards for Affordable Housing
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.
Buying a home is a lengthy and stressful process for everyone, rich or poor. But BoP customers face a tougher road to ensuring their investment buys the best quality they can afford. They have little prior experience buying a new urban home, few relatives to share their home-buying lessons, and even fewer can afford a lawyer or mortgage banker to advise them about contracts or to recommend architects, master contractors, or licensed inspectors to evaluate a building plan or construction quality once built. Public information about how to judge home quality and price is rare – outside the marketing publicity by the builders themselves.
And yet, the investment to buy an affordable house is a greater risk for BoP families proportionate to their income and assets. It represents years of sacrifice to have enough for a small down payment. There is no margin for error: the loan they get for its purchase stretches the limit of their credit (if they even can get credit). Once bought, this investment must be a tangible and lasting asset that grows in value for many years. BoP customers are under great pressure to maximize the value of a real estate purchase. In short, they are putting their entire life savings at risk.
What advice, technical assistance, standards for materials and building requirements are available to guide them? Who enforces building standards? If customers are sold a home with sub-standard construction or poor quality materials – or their neighbor builds an unstable structure posing a danger to their home and family – what recourse do BoP citizens have?
To answer these questions, Ashoka’s Housing for All India reviewed the laws, regulations and enforcement governing affordable housing. We wanted to be sure that the affordable homes Ashoka HFA was planning to have built met appropriate quality standards. What were the definitions? What did builders, architects, engineers, urban planners and government officials see as minimal required quality benchmarks? How do we protect the consumer and the home-builder from unsafe quality? How do they get help enforcing appropriate quality construction?
We found a labyrinth of confusing and often contradictory mandates, which were not enforced uniformly or adapted to the needs of BoP communities. There is no official, consistent definition. For example, our partners classify affordable housing as costing below INR 10 lakhs (roughly US $20,000). But we found developers advertising affordable housing as high as INR 40 lakhs (roughly US $80,000). This price mismatch means that many houses labeled “affordable” are totally unattainable for BoP households, and what the $80,000 “affordable” houses offered (size, materials, quality) had no relation to what those seeking $20,000 “affordable” houses would receive.
Instead we found that to be affordable, quality is often sacrificed in exchange for low costs (for the customer) and higher profit margins (for the builder or developer). Customers are sold homes which are poorly designed, cheaply built, often needing costly repairs quickly and, therefore, their purchase is ultimately not sustainable. As Kirtee Shah (pictured above), an experienced architect and chairman of KSA Design Planning Services, notes, “A new house is a very big investment for low-income customers; they cannot afford to buy bad quality.” 
A Step Toward Affordable Housing Standards
To remedy this situation, Ashoka HFA India looked for ways to provide both builders and consumers with trustworthy guidelines for quality in affordable housing. The major challenges:
- How to provide good standards that ensure safety and protect consumers without adding to complex and slow bureaucracy, yet are clearly enforceable?
- How to ensure quality without pricing affordable construction above market limits?
- How to get technical information widely shared in understandable terms, with processes for recourse, into the hands of BoP consumers?
- How to ensure a process that was win-win-win: good for public safety and security, good for BoP households and good for home builders?
We decided to collaborate with TÜV Rheinland – a leading international company developing quality standards and certifications in many fields worldwide – to create a set of quality standards, benchmark measures and a rating system to be applied to affordable housing throughout India that reliably balances housing quality and costs
The Certification Process
The certification we are developing is not a one-time “stamp of approval.” It is a process that starts with pre-building and lasts over time, involving multiple stakeholders:
Stage One: Developers at the start of a project apply to accredited certification agencies for a rating. The measures included in the rating include: adequate site selection, construction processes and materials, design, thermal comfort, energy use, waste disposal, amenities, accessibility to the low-income populations’ employment and processes to involve consumers in the maintenance of the building. Developers receive an initial rating after a review of documents and construction plans. They can use a favorable rating to market their offers. Consumers looking for better housing options can check the ratings for sound advice about which offers the best value for the price.
Stage Two: Once the first consumers have moved into a new housing development, they begin to provide feedback on aspects of its quality. These will affect the overall final rating for the building project. It becomes a strong incentive for developers to maintain good quality (or suffer bad publicity from a poor overall rating), encouraging them to complete the building process consistently well, not just for the few introductory sales.
A third stage after final certification is given has longer-term monitoring and improvement at its core. Multiple affordable housing stakeholders – developers, citizen organizations, housing finance institutions, research organizations – will share their ongoing findings on the accuracy of the ratings, where they are working well, and where they need clarification or improvements. This multi-stakeholder vigilance ensures transparency and trust in the ratings, and set up processes for solving problems that may arise with an emphasis on collaboration, not conflict.
Benefits for the Affordable Housing Sector
Affordable housing consumers will be able to make informed buying choices using these ratings. Armed with this accurate information, they can balance quality with affordability – and begin to have the confidence and power of full economic citizens. It is a large step: instead of remaining victims of fraud, false advertising or few good options, they will move from being underserved informal sector slum dwellers to consumers exercising their choice in the formal market. They establish patterns that will work as they seek increased income, better public infrastructure, health and education services shown impact favorably on their family’s future.
Private developers will lower their per-project planning and start-up costs, since the standards and measures will already have been tested and established. They can innovate, but the basic requirements and costs will be predictable for permitting, pricing and marketing purposes. They will also have clear guidelines for their construction workers and foremen to oversee, making it cheaper and easier to enforce quality. Developers with good ratings will quickly gain a competitive advantage in the market, enjoying higher demand for their units, as potential customers will trust (and use word of mouth to spread) the quality of their product.
Government agencies will save time, money and people while improving the affordable housing sector by adopting these standards, as stakeholder input for the rating system is key. These savings allow government agencies to focus on enforcing the worst cases of fraud or unscrupulous builders, and on positive public policy for urban planning, infrastructure improvements, etc.
Increased collaboration will create more housing options and profits, as consumers, citizen organizations, finance institutions and builders will all be using the same terms and expectations for quality, options and costs. As this information is co-developed at the project conception stage, it will lower the transaction costs overall for consumers, MFIs and builders, and will speed up the time to move the new project from vision to completion – a virtuous investment and cash-flow cycle for developers and potential home owners.
Working Toward A National Standard
Key to these standards becoming respected and widely adopted, of course, is the fundamental role played by government to endorse and enforce them.
Following an Ashoka HFA India workshop held earlier this year to introduce its joint project to develop affordable housing standards, Aruna Sundarajan, Joint Secretary of India’s Ministry of Housing and Urban Poverty Alleviation said: “I am very happy to see this initiative. It is very important for the Government of India to incorporate the learning from other players in the field in order to tackle the tremendous poor quality of housing in India.”
We involve local and national government officials from the beginning of developing the quality standards and certification process. These carefully formulated measures and processes will contribute to a better national policy and government effectiveness in the affordable housing sector – helping it to demonstrate how it supports closing the huge deficit that is growing each year.
All these steps and stakeholders are critical as we aim at changing policy, mind-sets and the reality in affordable housing so that ultimately, affordable housing is a good source for business growth of its builders, improves the urban landscape for cities, and fulfills the hopes of BoP consumers to attain their dream homes.
 HFA India workshop on Best Practices in Bangalore, July 2011