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…

  • I like this – David! One of our advisors – Paul Pollack asks his “customers” why they are poor. They unanimously reply – “because we don’t make enough money.” So the root cause of poverty is economic. Let’s ask why. Why can’t the poor make more money? And there are a lot of answers to that simple question.

    We do want to look at this issue in a wholistic way. And thanks for your insights – we don’t want to take anything out of the hands of the poor. Rather we’d like to find ways to employ the poor. That is one thing we see with Partners In Health. In Rwanda, they paid folks to build their own houses.

    • Hi Christian. First: thanks.

      I’ll head off now to your site to see more about what you are actually up to — without trusting solely in The Economist. A few thoughts (that I’ll be ponder myself, too, as I visit):

      If we take a business approach to housing, how do we frame the customer focus? How are we finding out about what the customer will engage with? I appreciate Paul Pollack’s query: but a good market researcher wouldn’t stop there. I think we’ll get innovative housing answers when we start asking our customers questions in a way that produces surprising insights—not the ones we expect. And that might involve working with them, to try and see the product differently, as well.

      David

    • Alex Miller

      An acquaintance of mine worked on proejct with  partners in health on the hospital in rwanda. I saw him do a presentation on the project and it was excellent. Their work is admirable and intelligent. 

  • Hi Christian. First: thanks.

    I’ll head off now to your site to see more about what you are actually up to — without trusting solely in The Economist. A few thoughts (that I’ll be ponder myself, too, as I visit):If we take a business approach to housing, how do we frame the customer focus? How are we finding out about what the customer will engage with? I appreciate Paul Pollack’s query: but a good market researcher wouldn’t stop there. I think we’ll get innovative housing answers when we start asking our customers questions in a way that produces surprising insights—not the ones we expect. And that might involve working with them, to try and see the product differently, as well.David

  • Link to the $300 house home page: http://www.300house.com/

    • SP

      Very interesting debate indeed. Got great insights into some housing topics. Landing on this page was so relevant to my existing thought process! I live in India and plan to construct a house in the next 6 months. I was debating within myself on how to break the “Traditional” design and construct a home that was economical yet stylish, compact yet comfortable and a design forth set by foresight to leave room for changes in the next few years, if that be. For starters, I spoke with my architect and I must say it took a lot of persuading to have him think on those lines! I’m still trying. I for one don’t want to construct a house that looks like another in the row!  I have a budget on one side and my ideas on the other. My vision of the house is a bit skewed (by Indian standards) as I am attempting to break the brick by brick ritual! I’m hoping to see some light at the end in my next meeting with the architect. I’m game to explore anything different to drive the herd in a different direction!  

      • A colleague of mine was on the radio the other day, and said this: “Most architects think they have the best ideas. I find that my clients have the best ideas. My job is to get them out of the client, and into the building.” He’s right, and I agree 100%!

        Find yourself an architect that thinks that like. They’re around: in India too.

  • Yodan

    And yet, David, it seems that in every advanced economy housing does become a commodity and is predominantly produced by big companies, and financed by big banks and savings and loans societies, and that is usually connected with levels of poverty going down significantly.

    • Hi Yodan. Very good point. I think it has to do with the price of labour. As the price of labour goes it, it makes more and more sense for the household to outsource its traditional production. We now outsource childcare, cooking (something like 30% of American meals eaten outside the home), clothing production (except as hobby), and so forth. Even the “romantic getaway weekend” is an outsourcing of the marital bed. But for the poor on a few rupees a day, who have surplus labour in the household, such outsourcing does not yet make sense. But when it does make sense, I’m sure it will happen.

      In other words, I’m sure that they are, en masse, making good decisions, and its not just a matter of a better argument, or NGO project to change things. 

      BTW, have you read “Portfolios of the Poor”? I have the first chapter downloaded. It’s an ethnographic study of how people on $2 a day manage their household economy.

  • Alex Miller

     My work in India primarily with bamboo showed off the economic benefits of decentralized housing production. For example, in terms of bamboo, a village’s farmers can grow it in conjunction with other crops, sell it to the same village’s families and then skills can be taught to construct the houses need in the same village. A small and closed loop. This is possible due to the financial gains more then anything else. One obstacle that was lightly touched on, is cultural conception of “good housing”. The biggest provider of housing in some countries is the government, subsidizing companies offering cheap housing. Case in point, India has a strong construction sector literally built on concrete/brick and nothing else. There are cheaper options and even more sustainable, but the government has seen little evidence to show that there are other options. And corruption is a big problem as the article explains. When I visited Mahatma Gandhi’s ashram in Wardha India, his house was a comfortable 550sqft, and in 1947 it cost 2$ to build. Obviously currency has gone up, but the skill and comfort have stayed the same, but locality made that place a model for “village economics” in terms of housing. I went through the website for the 300$ house, and that’s whole “post reply” in it’s self.

    • Christian

      Alex – can you send me an email – info@300house:twitter .com ?

    • Hi Alex. When Howard and I did our work in Vellore, the whole drive of CEDMA (the local NGO) was to get control of housing out of the hands of government/contractors, and into the hands of the villagers. In this they succeeded. By managing construction themselves, using and supervising their own chosen suppliers of labour and materials, they were able to reduce costs by half.

      in my current work in Laos, which is World Bank funded schools, communities when directly contracted to build their own schools are also cheaper than contractor-built. The cost difference is not that great, but what is significant is that about half the school budget stays in the community in the form of payments for labour or materials. 

      However, in both cases, when given a choice between “traditional” materials (mud brick in Vellore, timber in Laos) and fired bricks or concrete blockwork, everyone chose the latter. This choice is so universal, and so strong, that I think that we’d be mad to discount it. I think that these people know something that we don’t. It might be about value for money (vs low cost); it might be about risk.

      But if we’re going to take the idea seriously that they should make decisions about their own built environment, then we have to take seriously (i.e. not dismiss) their very strong views on such matters. In development, as in commerce: the customer is always right.

      • Christian

        David – great points.  I think this is the “kaccha” versus “pucka” house debate that has gone on forever in India.  As you know, in India folks invest in their house by buying one brick at a time – and it takes many years to accumulate enough bricks to build the “pucka” house…

        So the bamboo solution will have to get social buy-in, as you say, which makes it difficult.  My assertion is that for the very poor, it may still be something preferable to their existing “kaccha” house.

        can u email me as well!?

      • Hi Christian. It is indeed the old debate, and the age of that debate suggests how entrenched the paradigm is. I don’t think its feasible to shift it, and I think thinking at the product level (bamboo vs brick) is the wrong level of analysis.

        The book “Co-opetition” provides a game-theoretic way of thinking of business alliances and competition. This is an article that gives some good cases, in particular why Wintel won over Apple-Motorola: http://goo.gl/btAjn

        Basically, we need to see not products, but ecologies, in which each node (say, choice of building material) is linked to many other nodes in a dense web of relationships. For instance, let’s say that my choice of brick is influenced by resale value, which in turn is based on market perception. No matter how much you convince me that bamboo is “better”, that’s not going to shift the market, and therefore my perception. In the Apple vs Microsoft battle, Apple was often clearly cited as the superior OS. But Microsoft tended to win because “no IT manager ever got sacked for choosing Microsoft.” By holding the high ground of volume early, Microsoft was able to dominate. 

        Brick won’t shift to bamboo just on the basis of being technically better. Bamboo needs to gain significant market share, before shifting market perceptions. Of course, in order to gain market share, it has shift perceptions. And there’s the double-bind. 

        I know all this first hand, from seven years of trying to introduce quality local materials to PNG. THere is a market for them. It’s small. And as long as its small, we didn’t enjoy the mindshare, distribution or efficiencies of production which imported materials had. And because we didn’t enjoy those, we couldn’t increase the market. And round and round we went.

        Have you ever tried to buy uniform, quality-assured bamboo in bulk? 

        I think time and money are better spent on incremental improvements. Invent a better brick: lower energy, better performing, lower cost, easier to lay. Trying to shift India (or anywhere) to bamboo… people have been trying for decades. Time to take stock and re-strategise.

      • “Brick won’t shift to bamboo just on the basis of being technically better.” Absolutely right. Market perceptions are key to being able to incrementally improve or eventually revolutionize housing technology. But that doesn’t mean innovation can’t happen — it just means that innovators need to think like marketers, and marketers need to understand what motivates the buyers in their market.

        Here in India, people are loathe to trust new products — not just new housing technology, but all kinds of new products. Yet the country is rapidly moving forward technologically. The keys are to establish the reliability and *desirability* of a product and to show how much others enjoy it. Solar energy has taken off with a vengeance here, in large part because see their neighbors using it.

        I disagree, though, that the changes have to be so incremental, as in making a better brick (although a very low-carbon brick would be a great step forward). If we look at the past, at some point homeowners made a decision to move from mud brick to cement and rebar because of their perception of better value. They can do the same for other technologies, but those future shifts will also ride on perception.

        In our podcast interview with Vijay Govindarajan housingrevolution.org/2011/09/300-dollar-house/ we grilled him on the question of the possible quality of a $300 House, but your points about market perceptions are equally important.

        “I’m pretty sure that this project will never come to fruition, and also hope it doesn’t.”

        That’s a bit harsh, don’t you think? If your reason is that “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” then check out the part of our interview where Govindarajan talks about the poor also being producers.

        What happens when housing is entirely produced locally, at least here in India, is that quality suffers. If every hinge has to be handmade by the local blacksmith, then no two hinges are ever alike, and you get windows and doors that don’t close properly. If, on the other hand, people can buy factory-made hinges, there’s a better chance they’ll be able to align their doors and windows to close more easily. And isn’t it the same with other components? Couldn’t local people assemble or install housing made from industrially produced, uniform components without compromising the local economy?

    • Chris Watkins

      I’ve stayed in temporary bamboo housing in Toraja, South Sulawesi highlands, for about a week. Some of the buildings used wooden planks instead of bamboo flooring, and corrugated iron roofing, but otherwise it was very traditional – no nails at all. These were impressive and stable structures – one of them supported hundreds of people at a time in a greeting ceremony, built on the side of a cliff with the high side supported on 6 meter bamboo poles. 

      I imagine that access to and ownership of bamboo and timber is an issue – I’ve heard of trees being repeatedly chopped down before they could grow big in parts of West Africa, until a law change that gave ownership to the local people rather than govt. Might have relevance elsewhere. 

      Good thoughts, David & Alex. 
      Chris aka @chriswaterguy:twitter, @appropedia:twitter 

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  • Getafix

    As people become less poor and their life chances and economic choices become greater, do they not also come to see housing in a different light – perhaps increasingly making ‘consumer’ choices about how they live? Your post seems based on the assumption that the poor choose to build their own homes – surely the truth is they have no other options? I imagine most people living in poverty can only dream of a well-built, properly secure and insulated home, but would jump at the chance of aquiring one if it was within their economic reach. Is it not possible that a $300 house might form one part of a wider approach to housing issues that includes multiple other options, including self-build?

    • And if I could buy an iPhone for $1.59, I’d jump at that too.

      India is a country of a billion people. It has a middle class which is bigger than the entire population of the United States. It has a huge, highly trained technical and professional population, many of whom have been working (successfully) to improve the conditions in slums. I attended my first low-cost housing project in 1980… and it was in India.

      There are two problems with this competition. One is that it assumes that a bunch of professionals in the United States, who were trained to produce architectural solutions for corporations, government, and the moneyed end of the middle class, and have never worked in India, have something really important to tell India about solutions for slums, that India doesn’t already know. The other is it assumes that architectural solutions of use to the Indian poor will come in the form of a complete “house design”, rather than incremental improvements in technology, finance, land and services.

      We get these inane competitions constantly, have had for decades, and they always produce nothing: other than some gallery exhibition in MOMA accompanied by champagne. Meanwhile, the people that do help with housing for the poor, in India, through the incremental changes listed above, get no help and no recognition. The idea that the way to help the poor is to send them designs concocted by ill-informed people operating from afar, is as bad as sending them used shoes or a million T-shirts. It’s SWEDOW: the acronym of “Stuff We Don’t Want”.

      It’s a miseducation of the public, which makes things worse.Finally, there are many, many poor people in the United States. Some of them are — guaranteed — within 100km of wherever it is you live. Professionals should go help them, and by help I mean “help which is perceived as help by the helpee”, not just a piece of paper covered in marks we call a “design”.

      That would send the right message.

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