June 28

Ruban Selvanayagam

What´s Holding Back the BoP Housing Sector?: The need is clear – so where’s the investment?

UN statistics indicate that some 67 new low-income housing units are needed somewhere in the world every minute. But Global South urban policy making has yet to tackle the very real implications of slum growth.

With the worsening state of informal communities in most developing world cities, It doesn´t take much examination to see that BoP housing and related infrastructure is massively ripe for investment. Not long ago, JP Morgan´s research affirmed the sector as having a profit potential of between US$ 177 and US$ 648 billion up to the year 2020.

So why hasn’t this investment happened?

Unfortunately, there are a number of reasons.

Capital intensiveness and application risks

Housing construction for the base of the pyramid, generally speaking, requires an above-average level of investment commitment that’s invariably seen as a gamble under constantly evolving market conditions. The lack of cohesive registries and reliable indices, for example, combines with the effects of speculation on materials, land, labor and other intangible input values to produce environments where achieving measured sustainability is a major challenge.

A lack of compelling business models and profit-making strategies

Some commonly discussed models that address BoP housing demands include “incremental” or “qualitative improvement” approaches, like small-scaled loans to improve living conditions within informal settlements. Other models include “slum-dweller relocation” initiatives, principally focused on creating simple homes that are usually located in the urban peripheries. To date, however, the actual success and long-term socio-economic impacts of such initiatives have rarely been disclosed or discussed at any great level of detail.

Land control issues

With weighty bureaucracy involving ownership and other legal complications, acquiring land to build in the developing world is no simple task. And navigating through archaic local planning laws and mandates requires a great deal of patience to ensure that all stages of the acquisition process are undertaken in the correct manner. While there have been some notable regulatory advances affecting emerging land specifically for the base of the pyramid, there is still much work to do to encourage investor confidence.

Execution barriers

There are many common restraining factors that make it essential for investors to partner only with competent professionals. These include: difficulties in contracting local labor; ensuring that relevant taxes, licensing and other financial obligations are made; adhering to health and safety norms; dealing with on-site problems; and consistency with technical/engineering standards. Indeed, if projects are not scrupulously planned and efficiently executed, the resulting bottlenecks are likely to lead to diminishing financial viability or, even worse, capital investment losses.

Environmental risks

Climate change is causing growing pressure to produce and deliver housing sustainably, yet most conventional construction models struggle to incorporate ecologically friendly installations while simultaneously achieving genuine affordability for end users (and minimum profit expectations). But with this pressure likely to increase, the low-income housing sector is likely to find itself even more caught up in this environmental balancing act.

Political risks and corruption

Developing-world construction sectors are characterized by heavy capital flows. Combined with the inevitable need for real estate-related projects to be approved by local government decision-makers, this unfortunately means that key relationships with the “right people” matter, opening the door for bribery. Housing the base of the pyramid is also, of course, an excellent campaigning tool. Given the amount of money involved, progress often becomes burdened by uninformed, self-seeking interests and ill-thought-out project objectives that fail to address the actual needs.

Government programs not reaching far enough

Perhaps the best examples of commendable levels of state-sponsored momentum come from Latin America, via programs like Minha Casa, Minha Vida (“My House, My Life”) in Brazil, Gran Misión Vivienda (“Great Housing Mission”) in Venezuela and 100 Mil Viviendas Gratis (“100,000 Free Houses”) in Colombia, amongst others. But while these programs are encouraging, the construction models that commonly underpin their operation demonstrably fail to address several of the core execution-related difficulties outlined above.

While all this may make depressing reading, like it or not, confronting these questions is simply unavoidable considering the huge global security time bomb that slum expansion is creating.

Much more pressure must be placed on governments to adequately and holistically deal with this often-forgotten human right. Stakeholders must avoid trivializing the complex magnitude of the problem and dismissively brushing over fundamental questions. Turning this situation around will require a bravely optimistic effort – but it’s an objective that is entirely possible.

The Fez Tá Pronto Construction System ©

Many of the questions outlined above will be familiar to those operating in the impact business sector in the developing world. However, as mentioned above, much of the reason that BoP housing arguably continues to attract little investment interest stems from the scarcity of models that create proven and risk-managed socioeconomic growth opportunities, while also raising the bar in terms of market delivery standards.

But these models do exist. For instance, the Fez Tá Pronto Construction System and its accompanying construction company (where I serve as partner director) uses a patented gypsum plaster block within a copyright-protected building technology to create high-quality, well-located and genuinely affordable homes. Alongside a range of environmental benefits, our model offers simplified, rapid productivity, which enables us (in Brazilian projects) to offer average salaries up to triple the current standard. The system, while not providing immediate answers to the complex political and land regulatory issues discussed in this post, creates a new and more viable landscape for stakeholders to finally achieve progress. We believe it could represent a paradigm shift in the Brazilian and global housing industry. Please see our website and the short introductory video below for more information:

affordable housing, infrastructure, social capital, urban