Rob Katz

Pop!Tech: Brian McCarthy Builds Dream Homes for the Base of the Pyramid

Brian McCarthyBrian McCarthy wants to live in a shipping container–seriously.? And based on what I’ve seen of his work, I would be thrilled to live in one, too.? McCarthy is the founder of PFNC, a manufacturer and provider of affordable housing. PFNC stands for Por Fin, Nuestra Casa–a Spanish phrase that translates as finally, a house of our own. ?

In 2004, McCarthy made a visit to Ciudad Ju?rez, along the US-M?xico border, as part of his executive MBA program. The city is home to more than 300 maquiladoras, which employ 1.1 million people.? Maquiladoras are factories that import materials and equipment duty-free for assembly or manufacturing and then re-export the assembled product, usually back to the originating country; most of their employees live in slums.After his visit, McCarthy couldn’t shake the images of poor people living in slums, especially since most of those poor people work in factories and contribute directly to the area’s robust economic growth rate (Juarez has an unemployment rate of less than 3%.)

PFNC containersIn response, he founded PFNC.? Por Fin, Nuestra Casa is a for-profit business dedicated to raising the standard of living for families who currently reside in dangerous or substandard conditions.? It does so by using low-cost, recycled materials–retrofitted shipping containers, to be exact–to create and sell affordable housing for the base of the pyramid.

McCarthy is here at Pop!Tech as part of the Social Innovation Fellows program; he got just 10 minutes on stage today to tell us about his work.? Luckily, he was gracious enough to sit down with me afterwards for an extended interview about him, his work and housing for the base of the economic pyramid.? Side note: PFNC and Brian McCarthy were recently featured by CNN; rather than re-writing it, I urge you to read it before reading this interview.

Rob Katz, Tell me about some of the biggest issues facing maquiladora laborers in Juarez.

Brian McCarthy, Por Fin, Nuestra Casa: Maquiladora workers, in many regards, have it better than many other Mexican workers.? Maquiladora jobs are relatively high paying jobs–about $2 per hour, on average.? The biggest challenge these workers face is setting themselves up in a new city, in most cases, and in cities that are just exploding in terms of population growth, like Juarez. (Editor’s note: Juarez’s population grew by 5.3 percent a year from 1990 to 2000; by comparison, the world’s average annual population growth rate was just 1.14% for the same period.)? There’s so little affordable housing that workers end up living in sub standard conditions.? It’s not getting better, either–there’s an annual shortage of about 50,000 units in Juarez every year. Why shipping containers?

Brian McCarthy: When we started thinking about housing in Juarez, we looked at a whole range of materials.? Our research boiled down to this: we haven?t discovered anything that re-creates a shipping container’s structural shell for a lower price–including materials and labor cost.? On the US-Mexico border, land is more expensive on the Mexican side than the US side–so the only way to offset the cost of land is to go vertical.? When you go vertical, the support materials get really expensive, as they should.? But shipping containers are designed to stack–up to 12 stories high.? So you take a low-cost, pre-fab shell that’s designed to spread out or go up, and you have the ideal building block for apartments or condominiums. How modular or configurable are the homes?

PFNC interiorBrian McCarthy: PFNC products are intended for urban markets.? But because of zoning laws, sometimes you can?t create stacked homes or apartments.? As a result, we have two models, one where the units are detached and the other where they are attached.? We plan on offering a multi-family, condominium-style community or a detached, single-family home community.? But we offer only 1 floor plan, which enables us to keep the prices low but offer quality and consistency across the board. Tell me about your customer research.

Brian McCarthy: For the past 15 months, we have been meeting with everyone we can–government officials, maquiladora operators, slum residents–everyone. We’ve met with banks and financing agencies.? There is simply not another product on the marketplace that’s scalable with our price point.? But there are still cultural concerns about using shipping containers as a home.? For example, in Mexico, everyone wants their own land–to hang a clothesline, or store belongings.–so there’s some resistance to the stacked model.? There has also been concern about temperature–in Juarez, it is 100 degrees in summer and below freezing in winter, so people are wary of living in a box.? At the same time, when we show drawings of our prototypes around the slums, the response is near-universal: that it would be a dream to live in a safe, modern home. Is there a role here for microfinancing to enable ownership?

Brian McCarthy: Our financing works for employees in both the formal and informal (black market) sectors.? For the formal sector employees, we offer a traditional finance model.? These employees–who make about $11/day–can take out mortgages with 10 to 20 year financing.? We?re now working to set up a financing system for informal employees.? This presents a huge opportunity for both social impact and to serve a total virgin market from a profit standpoint. How do you deal with land title issues?

Brian McCarthy: In many of the communities we work in and visit, it’s the biggest issue.? We have visited several communities involved in land disputes.? We?re not proposing to go into areas, remove a slum, and then put a community into its place.? We?re talking about a greenfield opportunity where we purchase the land, build the homes, stack them, and sell them in a condo-like model. Do you have a Fortune 1000 company or companies lined up to buy PFNC homes for their laborers?

Brian McCarthy: We’ve met with several companies who have expressed interest and we have agreements to take the next steps (marketing studies with company employees and surveys on people’s perception of the PFNC model.)? Once we can demonstrate its benefit for all parties involved, we think we can get a contract.

(Editor’s note: On Tuesday, PFNC closed on its Series A round of financing, a $1.9 million dollar deal with Gray Ghost Ventures.) There is a lot of enthusiasm worldwide for incremental housing schemes.? Why are you choosing to do something different?

Brian McCarthy: I think that incremental housing has a place in certain markets, and applaud those who are doing it.? But I truly believe that pre-fabricated housing will scale more rapidly, easily and with better quality to the end consumer than incremental housing will.? You can?t do 10,000 incremental houses quickly–by definition.? Furthermore, in incremental housing, people are often adding to a structure where they don?t own the land, so the money and time invested can?t return anything to them in terms of collateral.? Of course, I can?t generalize–there are some great incremental schemes that involve land title.? I guess what I?m trying to say is that I think pre-fabricated will work really well in Juarez and in many other places.? There is no one-size-fits-all model here. What is the role of aspiration and dignity in the PFNC model?

Brian McCarthy: Our initial home designs had just the absolute bare essentials to live–light, clean water, and safety.? So human dignity came first.? But we didn?t factor in aspiration as much as we should have, initially.? It’s crucially important, because we?re competing against free, against the status quo.? So for us to put a compelling model forward, something that people are going to have to pay for, we have to show maximum value, and in a way that’s palatable to the consumer in every way.? This is more than just a home–it’s something that people would happily pay to live in.? It’s easy for us to put our American lens on slum living and try to put ourselves in the shoes of the poor.? But a lot of maquiladora workers are truly comfortable in their existing situations, and for PFNC to succeed, we have to show compelling value for people to change.

Here’s a story for you that illustrates my point.? In India, there are people who will be moved into a new house thanks to a housing scheme.? The family loves it.? But when the organizers go away, the family often rents out the new house for money and goes back to their slum to live–where they?re comfortable. What’s your big, audacious goal?

Brian McCarthy: Our first goal is to execute well in Juarez and build 10,000 units per year there.? Subsequently, we want to identify other markets or identify another model that will open up other markets.? The need for affordable housing is so huge, and so global, it’s beyond any one person’s scope to conquer it.? I hope not to stay distracted. Do you consider yourself to be a William Levitt for the BoP?

Brian McCarthy: We believe in the community approach just like Levitt–we have to do more than just housing–schools, daycare, nursing stations or clinics.? A lot of people have made reference to the company town idea.? We are not a company town–in our model, the company extends the employee a loan that pays back over 36 months, so people are not stuck in the same job necessarily.? They could leave, but only if they line up the financing.? The good news for residents is that unemployment in Juarez is less than 3% – so if they are changing jobs, it’s usually because of a better opportunity. What would you like to ask the NextBillion community?

Brian McCarthy: Support for PFNC to get it right–via marketing studies, product design ideas, about cultural nuances that we might need to know about.? In the execution, if this is a desirable place for people to live, then we have the potential to house people world wide.? If we get it wrong, then we?re the bad guys who locked up thousands of Mexicans into steel shipping containers.? We?re getting one chance here – help us get it right.

Acumen Fund