SIMILARITIES BETWEEN ALL THE AFFORDABLE HOUSING MODELS
Although affordable housing models have different approaches to solve the housing needs, we can nonetheless highlight at least 3 similarities between them:
> Multi-stakeholders approaches: affordable housing projects are complex projects involving more stakeholders than traditional housing projects. Communities, NGOs, housing finance institutions, and local authorities are among the main stakeholders of any affordable housing project. They usually rely on partnerships between for profit and non profit organizations and are difficult to coordinate. One of the main challenge for the project leader is to make these two « worlds » speak the same language and work together efficiently.
> NGOs involvement: in every affordable housing project aiming to have a genuine social impact, NGOs and social entrepreneurs are involved to a certain extent. Their input can be variable - from project leader or simple « marketing agent » - but their role is often critical to the success of the project :
- They bring the knowledge of the poor
- They facilitate relationships between the poor and others stakeholders and can market the project in the community
- They ensure the project is in line with the needs of the poor and facilitate their participation in the process
- They ensure the follow-up of the project
> Availability of affordable housing finance options: as shown in the previous pages of this report, housing finance is essential to any affordable housing project. The 3 models highlighted include affordable housing finance options and involve specialized organizations. NGO’s again, play usually a critical role to aggregate the demand, organize saving groups, do credit assessment of potential customers and collects loans.
STRENGHS AND WEAKNESSES OF EACH AFFORDABLE HOUSING MODEL
We propose hereafter a short analysis of the different models according to 4 key criteria: social impact, economic viability, scalability and potential synergies with private sector organizations. The objective is to highlight strengths and weaknesses of each model.
SOCIAL IMPACT ECONOMIC VIABILITY
+ Target slum dwellers ! very low income
+ Keep social fabric and economic activities of slum dwellers
+ Social benefits have been measured and include better health, education, economic development
- Subsidy-based model
SCALABILITY SYNERGIES WITH PRIVATE SECTOR
+ Mass market and slum dwellers already spend money on (temporary) housing improvement (e.g. before mansoon)
+ Slum rehabilitation projects have already been implemented in several cities
- Major barrier is absence of property rights for many slum dwellers
- Dependant on political will as local authorities have to be involved (e.g. for infrastructure works and fundings)
- Current trend is to demolish slums and relocate slum dwellers in order to use the land
+ Slum rehabilitation projects create an enabling environment for BoP approach
+ Strong links between slum rehabilitation projects and housing spending of slum dwellers
+ Particularly interesting for construction material providers as housing upgrading are done by the people
Escale Responsable - Affordable housing in India : needs and emerging solutions
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SOCIAL IMPACT ECONOMIC VIABILIY
+ Target the poorest segment of the population (including pavement dwellers)
- High risk of negative social impact unless communities are involved in the whole process
- Often subsidy-based model
SCALABILITY SYNERGIES WITH PRIVATE SECTOR
+ Slum dwellers relocation is a major trend in India since the government has fixed a 0 slum objective.
- Dependant on political will
+ Business opportunities for private sector are mainly found in the construction phase of new housing units
SLUM REDEVELOPMENT MODEL
SOCIAL IMPACT ECONOMIC VIABILITY
= Projects in progress are impacting mainly the top of the “bottom of the pyramid” as housing units are often booked by middle class customers instead of BoP customers
- Many uncertainties regarding integration of former slum dwellers in new housing regarding their integration in their new social environment, impact on their incomes and economic activities (new transport costs, business opportunity destruction…)
- Some projects are realized without the communities consultation ! risk of inadequate housing
- Risk of the speculation
+ For profit business model (but no return on experience so far to validate its profitability)
- Doubts regarding repayment capacity of poor customers
SCALABILITY SYNERGIES WITH PRIVATE SECTOR
+ Mass market and strong demand : need of 21 million new housing units in India)
+ Affordable housing projects are mushrooming in every cities of India
+ Led by private sector organizations
+ Several required partnerships with other private companies : Housing finance organizations, contractors, material providers etc.
NEW HOUSING MODEL
SOCIAL IMPACT ECONOMIC VIABILITY
+ Loans benefiting to low income families coming from the informal economy
- The social impacts remain low as it is an emerging industry that benefits to a small number of people
- Still no housing finance solutions for the very poor (BoP)
+ Profitable and self sufficient model
+ Huge market opportunities
- High risk of this business (repayment risk, no real collaterals (business creation) like for MFIs)
- Need to gather more customer to increase the profitability
SCALABILITY SYNERGIES WITH PRIVATE SECTOR
+ Mass market and important need for housing
- Dependent on legal aspects (clear land tenure) or affordable housing projects
- No real return on experience as the model is being experimenting in few cities
+ Housing finance is a key and mandatory partner in all the affordable housing projects that are currently being experimented
OUR CONCLUSIONS IN 5 QUESTIONS
1/ Are current affordable housing initiatives potentially able to solve the problem of housing poverty in India?
Even if they scale up, current affordable housing initiatives will only bring solutions to a small portion of Indian's population in need of adequate housing. As mentioned earlier in this study, India is still very rural with 70% of the population living in the countryside and count 101 million people earning less than Rs 7,000 ($150) a month. Housing needs of these two segments of population – the rural poor and the very poor – are massive – only 19% of rural population live in strong houses and India counts more than 200 million homeless people – but unmet by market-based initiatives (excepted Habitat for Humanity).
To solve housing poverty in India, affordable housing initiatives will have to tackle the very poor and the rural population. As the sector is still very young, we are confident that players will seek more and more to reach these two segments of population. However it can happen only if the Indian government creates an enabling environment (facilitate access to ownership, create incentives for private sector to get involved in housing solutions for the poor).
2/ What are the main barriers to the development of affordable housing solutions? The 3 main barriers for affordable housing market growth are the following:
> Access to land property : Establishing homeownership in India is difficult due to a lack of clear land titles, in particular in urban areas where there is few transparency on property transactions and widespread disputes and litigations. The government has been struggling to solve land title issues for the last 20 years without any clear result so far. Land title uncertainties and the associated fear of eviction are a major barrier to housing investments in slums.
> Availability of housing finance: The growing supply of housing for the poor is constrained by the fact that they still don’t have access to housing finance. As explained earlier in this study a recent survey from Ashoka India among 45 housing finance institutions reveals that only 7 of them provide loans to customers from the informal sector : GRUH Finance, Mas Financial Services, Dewan, HUDCO, Mahindra Housing finance, Repco and MHFC (which is the only one to lend without requesting a guarantor). Among the Non Banking Finance Companies, only a handful microfinance institutions (MFI) explicitly offer housing finance loans and there is no large scale housing microfinance programme in India.
> Lack of incentives to build houses for the poor: The Indian Government has been unable so far to provide efficient incentives to build low cost houses excepted in Mumbai which has developed an efficient Slum Rehabilitation Policy which incites developers to build affordable housing.
3/ Why should multinational corporations get involved in affordable housing in India?
The first point that comes to our mind after this study is « because the market is huge and still untapped ». All the for-profit organizations we have met have no doubt about the business opportunity behind affordable housing. The demand for housing is so high that when building new housing units for the poor, the main issue is to make sure it will really go to the poor initially targeted by the project.
Our second point is that the market is far from being saturated: there is space for new players – but for how long?
During our time in India, we felt that affordable housing was the « hot topic » of the moment. It is everywhere: in the press, in the ads and each month bring its lot of new players and projects. If players already involved are taking bigger risks they also learn how to successfully make business while serving the poor and will benefit of a first mover’s advantage.
Kirtee Shah, Architect
Vishnu Swaminathan, Ashoka
« Five years ago, no one builder was speaking about affordable housing. Today everybody speaks about it »
“The companies are used to serve the top and middle of the pyramid. As they don’t know the low income population, they think there is no market!”
Kirtee Shah, Architect
Escale Responsable - Affordable housing in India : needs and emerging solutions
61 4/ What are the risks of getting involved in affordable housing?
Affordable housing is a fragmented market. Strategies and business models differ based on whether customers are urban or rural, from lower income groups or low middle income, working near their home or not…There is not much return on experience on affordable housing projects and all players are still in “pilot stage” which means: higher cost and higher risk of failure.
Reaching the poorest customers often requires radically new approaches and many traditional construction and real estate development corporations have taken the “wait and see” option. As a result, most of the players involved in affordable housing projects are start-ups (e.g. DBS Affordable Homes or MHFC), new entrants (e.g. Tata Housing), or non profit organizations (e.g. SAATH or MHT).
5/ How can private sector get involved?
> Work with social entrepreneurs and non profit organizations is almost a pre-requisite for any company willing to successfully get involved in affordable housing because they usually have the knowledge of the poor and because the poor trust them. Choice of the partner(s) organization(s) and type of partnership depends on the company's objectives and profile. In our study we came across many types of partnerships between for-profit and non-profit organizations. Hereafter are the 3 most interesting:
• Joint venture: The company invests in a common project with the NGO, like Vintron Developers has done with Awaas Sewa, In Ahmedabad
• Bring expertise and/or fundings to an NGOs project: see ACC and Habitat For Humanity
• Buy NGO’s marketing agent services: the company uses the NGO as the interface with its potential customers: ex using SAATH Urban Resources Centres to test a product in a slum
> Learn before looking for profit: serving the poor has to be a long term commitment and companies should not expect making profit in the short term. As they usually have little knowledge regarding the poor’s preferences, needs, ability to pay…they need to learn in the first place. Staff immersion can be a possibility. Another one is to test out solutions on small scale projects like ACC does currently with Habitat For Humanity.
> Be participative: a key success factor is to make people participate in the whole process. As Sheela Patel put it « community engagement is key, because people have to feel the project is an improvement compared with what they do by themselves ». All projects of our case studies (excepted Foliage) includes a community involvement component. E.g.: Awaas Sewa Private Ltd is consulting potential customers to ensure the design of its housing units fulfils their needs. Sparc slum redevelopment projects are co- managed by the slum community.
> Think out of the box : be flexible and open to new ideas. Housing units dedicated to the poor are very different from housing units traditionally sold to middle and upper class customers. As explained by Sparc, « Its ok for rich people to live in 60 floor buildings, but not for poor people. You have to build ‘walk-up houses’, you have to build communities, you have to build neighbourhoods… ». Building or upgrading housing units is not enough to serve the poor efficiently. As shown by our business cases, affordable housing projects have to be comprehensive and bring community services as well as housing finance options.
“Never look at housing, look at living conditions and poverty. Homelessness is not because people don’t have housing, but because they are poor and they have no means of revenues”