Critique of the $300 house

by David Week on 10 May 2011

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In the 30th April issue of “the capitalists’ bible”, The Economist, I read that:

…Vijay Govindarajan, of Dartmouth College’s Tuck School of Business, along with Christian Sarkar, a marketing expert, issued a challenge in a Harvard Business Review blog: why not apply the world’s best business thinking to housing the poor?

His idea is to design a $300 house.

Now, at one level I like this idea. I think working on hard problems is a good way to come up with cool new ways of thinking. At the same time, I’m pretty sure that this project will never come to fruition, and also hope it doesn’t.

The article suggests that Vijay and Christian must:

…solve three huge problems to succeed. They must persuade big companies that they can make money out of cheap homes, because only they can achieve the economies of scale needed to hit the target price. They need to ensure sufficient access to microloans: $300 is a huge investment for a family of squatters living on a couple of dollars a day. And they need to overcome the obstacle that most slum-dwellers have weak or non-existent property rights.

Property rights: that Hernando de Soto’s gig. Microcredit, that’s Muhammad Yunus’ gig… or it used to before he got shafted by one of the most corrupt governments on Earth. That really leaves the first problem: mass production.

And herein lies my problem with the whole venture (at least as portrayed by the capitalists’s bible.)

  • First, as even a casual look at current day China or the current day United States will tell you, the way to develop is not by consuming, but by producing. It’s the producers that develop.
  • This venture seems to see the poor as consumers, and the house as an item of consumption. Currently, the poor produce their own housing. It wants to transfer that power from the poor, to “big companies.”
  • Housing  plays a unique role in the economy. Housing starts are seen as a “lead indicator” in the economy. Why? Because housing involves almost all the rest of the economy. Law, finance, design, minerals, manufacturing… almost any sector of the economy that you can think of is involved in the production of housing. So when housing goes up, the rest of the economy follows. When housing goes down, ditto.
  • In a poor community, locally produced housing pulls the local economy up. And vice versa. I have serious concerns about any venture that wants to take this key economic activity out of the hands of the poor.

Does mass production have a role in the lives of the poor? Yes… and to look at how, you only have to refer to the actions of the poor themselves. They love mobile phones, and corrugated iron, both of which are mass produced. Both of the products are cheap, and allow the user enormous scope to shape and use them in different ways.

So what we need is not $300 houses, not prototype houses, and not public challenges to design them. Rather, we need to better, more nuanced understandings of the housing process, and its role in the economy and lives of the poor.

As one economist once put it to me:

Are people poor because they have no houses?

Or do they have no houses, because they are poor…

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