Why work in affordable housing? – A cross-continental discussion

By Tatsiana Hulko, BCtA Corporate Engagement and Business Development Lead and Aimee Brown, BCtA Communications Lead

Business Call to Action discusses the opportunities and motivations for working in the affordable housing sector with two of its members, Mexico’s Habvita, and Ansaar Management Company (AMC) in Pakistan:

Affordable housing has been identified as one of 60 inclusive market “hot spots” globally. Is this trend true for your country? If so, what are the key drivers that enable the growth of affordable housing sector in your country/region?

AMC: Yes, this is true in South Asia. Based on our experience in Pakistan, a country which has just officially been termed an ’emerging market’, the possibility for doing business is becoming easier. While Pakistan has a booming population which it is trying to cater to, it already has a deficit in affordable urban units of about 10 million homes, and this deficit is increasing at a rate of around 500,000/year. The combination of increasing numbers of small business owners, an emerging middle class, a country with exponential population growth and rates of urbanization, and a massive deficit in housing and housing supply at affordable rates, and no competitors (all other developers are aimed at higher middle income, high income and the elite), makes for the perfect combination for AMC to come into that gap and have a successful business, whilst also having immediate impact.

There is a significant shortage of low income housing in your country – what motivated you to work in affordable housing?

Habvita: For the last 30 years, houses have been built the same way. Developers buy land, build houses, and then sell them to gain a profit, but this does not apply to Mexico as in most developing countries, as here almost 65 percent of all houses built are self-constructed.  Most homes are built by their owners and on property that they already own, thus not using a formal developer. Since the majority of labor in Mexico is informal, people do not have access to financing and are not able to buy houses from developers. We created a model that would fulfill the needs of this segment of the population. We want to bring security, development, and growth to all the informal sectors in the country. 

How are you able to meet the needs of those living at the bottom of the economic pyramid, whose purchasing power is very low, while still maintaining a profitable business?

AMC: Our business model is based on a cross subsidy model. We capitalise on the typical type of development in Pakistan by selling plots which are sold at market rates to customers for investment purposes (these plots have high margins in them), while building quality, affordable housing in the same development, which we sell at cost or a margin. We also provide loans of up to 20 years through our financing partners, making it very affordable for most customers. Usually, loan repayments are in line with what they would typically be paying in rent. 

How important is contributing to Sustainable Development Goals to your core business?

Habvita: Habvita is committed to the Sustainable Development Goals, not only by building housing. We are also generating jobs and promoting financial inclusion. In this way, our efforts indirectly benefit health, increase the safety of people, and ensure rural communities are increasingly developed. We want to be part of the change.

How can  the Government better engage with the private sector to encourage companies to reach out to market segments that are underserved?

AMC uses Compressed Earth Brick (CEB) in the construction of its homes, which is produced in a less polluting manner than bricks from kilns.

AMC: First, they need to devise a system of recognizing private sector businesses that are pioneering the way forward in neglected sectors like housing, in order to help facilitate those businesses through ‘fast track’ streams for official approvals, minimizing undue bureaucracy, in turn minimizing the effect on bottom lines, speeding up production and resulting in more investment in impact businesses. 

Second, they need to enforce a system of getting all citizens to own and use a bank account. There are multiple beneficial reasons to do so, but specifically relating to the private sector it will facilitate business with the low- and middle-income sectors significantly as it will reduce lack of trust in institutions and enable businesses to monitor risk.

How are you factoring in climate change impacts into your construction?

Habvita: We are implementing technologies that allow us to be more efficient, which in turn can improve our environmental impacts. We are also integrating many technologies into our houses, not only to create sustainable and ecofriendly houses, but also to improve the quality of life of each family and provide the infrastructure that is lacking in such communities. Solar panels are often seen as luxuries, but in our houses they are a necessity because there is no electricity. The same goes for water filtration and sanitation systems, thus the majority of our homes have their own water harvesting and biodigestors.

We aim to develop more government alliances, because these types of technologies save municipalities a great amount of money in infrastructure. When houses and communities generate their own energy through the use of solar panels, the government does not have to invest in large energy infrastructure to meet demand.

AMC: We provide a basic solar unit to every home to run three lights and one fan in order to cover the electricity load-shedding, which is very common in Pakistan. We also have piloted a new brick Compressed Earth Brick (CEB), which is produced in a less polluting manner than bricks from kilns. This brick is stronger and more resilient against earthquakes, which are also common place in Pakistan.

In your experience, what are the key factors that must be in place to ensure an inclusive business is successful in reaching its goals, while meeting the needs of the BoP?

AMC: First, the business model must be based on financial sustainability; second, there must be community-driven ownership; third, you must recruit good talent and pay market-rate salaries. Finally, there must be strong leadership.