More on Sponsor a Supply Chain: Affordable housing

There has been a fantastic response to the Sponsor a Supply Chain idea. Several people in the UK see this as a viable option for some of those industries that are suffering sudden decline in demand to grow viable business overseas; others from India, South America and places like Poland see this as a means to solve and develop short term productivity issues; medium term skills development and longer term market opportunities. 

It has provided an excellent forum to illustrate how logistics can transform quality of life and economies in the informal and emerging world. Equally, and suprisingly for some, it demonstrates how the formal world can play a role and benefit directly from such transformation. Affordable housing has provoked several useful e mail exchanges and skype debates. Here’s a summary …

Housing is a major issue worldwide in the rapidly expanding cities and, out in the the rural areas too. This is an issue for those in the formal and informal market alike.

Up to 20% of the world’s population live in slums and this proportion will grow as the majority of the 2.6 billion population growth by 2050 will  only be able to afford informal housing.

Let’s be clear on the issues. The formal housing market is characterised by secure incomes supported by mortgage finance; official title deeds recognised by banks; real estate agents and development companies building homes that people need.

Contrast this with those who do not have bank accounts or savings that can generate the deposit to buy. The collapse of the sub prime market in the USA has triggered a return to more stringent demands which will restrict supply. In the developing or emerging world, access to such a formal housing market is virtually zero; so too a formal rental market.  People have to build their own homes one way or another.

Governments have failed to keep pace with rising demand and, as needs accelerate the agenda will become more pressing. There will be openings for the private sector to fill the gap and here are some thoughts on how.

1. Opportunity. A failure to grasp the demographics and specific housing requirments by Governments worldwide could spell disaster on a major scale.

  • Health. Without adequate sanitation and healthcare support the slums could be the hotbed of serious epidemics that will impact urban areas as a whole. 
  • Labour pool. Where will the skilled and non skilled labour actually live? How will they commute to work? Any upturn will need be constrained by this issue.
  • Skilled labour pool. How will we educate the skilled labour of the future? This has to be integrated into thinking on housing.
  • Green agenda. What are the environmental impacts of all of the above?   

2. Needs. The scale is collosal but so too is the challenge of what type of hosuing and the materials to be used.

  • Affordability. Let’s consider a price point. The India BOP housing market is 48% of the housing stock and estimated at $62 billion. This means the spend on a house is $164 per unit. In Russia the figures are $97 billion at $1,268 per unit. Brasil’s progressive housing – those units that are added to over time –  market is estimated at $52 billion.  See: Booz Allan Hamilton Reort (2005).In South Africa, several companies have developed modular housing solutions that can be built with cheap materials and unskilled labour. They can build a home in one day at a reduced cost. Their opportunity lies in the sheer scale of the needs. This is in the lowest income neighbourhoods but, figures in the developed world illustrate a similar story for those with jobs in the formal sector. For example, it has been made clear that vital public workers are being priced out of the housing market throughout the congested south east of England.

    There is a clear need worldwide for a full range of affordable housing that can conform to emerging environmental standards.

  • Infrastructure. All connectivity materials are part of the solution and this is a massive business opportunity.
      
  • Innovation. This is a major field for fresh thinking in design, materials – much of which should be recycled – and construction. Just like the caravan industry in Hull, there is a clear need to develop end-to-end sourcing and production processes that can deliver better, cheaper and faster homes.
  • Skills required. Again, South Africa is developing solutions that do not need highly skilled people but, whose exposure to efficient building practices can grow the skills base.However, from end-to-end skills are needed to make the process work and, to maximise outputs.          

3. From raw materials to homes. This is a complex supply chain and this requires skill and that capcity is not abundant in the emerging economies.

We would welcome any comments to develop this area of discussion. How feasible is it for industries in the developed world to “adopt” a supply chain in a developing or emerging economy? What impact could this have on the current Recession?

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8 Responses to More on Sponsor a Supply Chain: Affordable housing

  1. Graham Hamilton says:

    This is a great and positive contribution to an important debate. I lecture at York St John University on various topics including the Psychology of Creativity and Innovation. Its clear to me and my students that TL is both creative, exciting and innovative. The students at YSj are very interested in development and a group of us will be working with people in rural areas of Tamil Nadu later this year on the psychology of innovation and logistics, a process which we expect to be challenging and illuminating for us all.

  2. Mike says:

    Just passing by. Btw, your website has great content!

  3. Fernando Ferrero says:

    I grew up in South America and I know the subject very well. I worked as a contractor in the construction industry and experienced all the problems mentioned in this article. I strongly believe that it is a good moment for the developed world to invest and encourage a supply chain that eventually is going to help all of us. I think this is achivable with the “know how” and transpanrency of the developed countries and the cooperation of the goverments in those emerging economies.

  4. Byron Song says:

    Again, very useful and thought provoking ideas. Thinking China …

    The new generation in China understand the pressure of housing too well. It is literally a dream for a new graduate to afford a house in Cities such as Beijing and Shanghai. Today’s price for a small apartment with two bedrooms in Shanghai can easily be over 1 million RMB. Which means:

    If I were a poor farmer in the hinterland of China, I have been given 1 ‘mu’ land (about 0.0667 hectares) in which I grow wheat and corn. I can make about 1,000 RMB a year. So it would take me 1,000 years without eating to buy such an apartment.

    If I were a very luck employee in the city, I would be paid up to 3,000 RMB per month after graduation. Even if I don’t eat, drink, smoke or getting sick, it would still take about 30 years to buy such an apartment.

    How to close the gap between rich and poor, and make houses affordable in the cities are among the big problems that China has to face. And ways in which logistics and the supply chain can transform the way this is done are key. In fact, get it right and it may mean that fewer people have to move to the cities and that could have another environmental impact.

  5. robjbell says:

    Thanks for this Byron. Are there any innovative ideas about affordable housing in China like the ones highlighted from South Africa? If so, who makes them and how are they built?

  6. 2020 says:

    we have to start small
    if we can open source a local bus ride
    the skills of trust etc
    the feedback loop at the social level
    can begin to grow
    until eventually we are taking part in the scale of idea you are suggesting

    any other way is organisational
    and is too slow and artificial

    real people
    real relationships

  7. njwyo says:

    2020:

    We also need to be quick. Organic growth as you describe can be very slow. Scale can be achieved through one big organisation e.g. World Bank or by many cooperative small organisations, e.g. the open source programming community. Both routes can be quick or slow, and don’t need to be an either/or. They can be both. Grameen Bank operates even though HSBC Bank exists.

    Whatever, if it is to be, we need to start.

  8. Karen Hughes says:

    Several points: 1) the ability to gain clear title to land is an issue. 2) requiring at least sanitation infrastructure is key to anyone who has spent time in Afghanistan, Nigeria, Congo-Kinshasa etc. 3) While not a panacea, entrepreneurs in Afghanistan were creating houses out of abandoned ISO containers. Innovation and use of what is available locally is critical. Let’s not place undo transportation (carbon footprint?) costs so we can manufacture in South Carolina. Plastic packaging waste is the bane of the developing world. Therefore, along the lines of materail reuse, let’s push for innovative thinking and the ability to manufacture locally.

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