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April 28, 2011

Basic civilized housing at $300 per house

"The basic idea – low-cost, low-tech, incrementally self-improvable housing." When Vijay Govindarajan and Christian Sarkar issued a challenge to the corporate world to help design highly scalable housing to replace the world's slums, we didn't know the response from the HBR.org community would be so immediate and passionate. Support, suggestions, and links to similar work poured in from around the world. Govindarajan and Sarkar quickly expanded the blog series to look at the challenge from many perspectives.

Last year 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?

They laid down a few simple guidelines. The houses should be built of mass-produced materials tough enough to protect their inhabitants from a hostile world. They should be equipped with the basics of civilised life, including water filters and solar panels. They should be “improvable”, so that families can adapt them to their needs. And they should cost no more than $300. On April 20th Mr Govindarajan launched a competition inviting people to submit designs for a prototype of the house.

300house.com is where designs are being submitted





Why has a simple blog post led to such an explosion of creativity? The obvious reason is that “frugal innovation”—the art of radically reducing the cost of products while also delivering first-class value—is all the rage at the moment. General Electric has reduced the cost of an electrocardiogram machine from $2,000 to $400. Tata Chemicals has produced a $24 purifier that can provide a family with pure water for a year. Girish Bharadwaj, an engineer, has perfected a technique for producing cheap footbridges that are transforming life in rural India.

Mr Govindarajan admits that the $300 figure was partly an attention-grabbing device. But he also argues that it has a certain logic. Muhammad Yunus, the founder of Grameen Bank, has calculated that the average value of the houses of people who have just escaped from poverty is $370. Tata Motors has also demonstrated the value of having a fixed figure to aim at: the company would have found it more difficult to produce the Tata Nano if it had simply been trying to produce a “cheap” car rather than a “one lakh” car (about $2,200).

Houses can be such effective anti-poverty tools. Poorly constructed ones contribute to a nexus of problems: the spread of disease (because they have no proper sanitation or ventilation), the perpetuation of poverty (because children have no proper lights to study by) and the general sense of insecurity (because they are so flimsy and flammable). Mr Govindarajan’s idea is so powerful because he treats houses as ecosystems that provide light, ventilation and sanitation.

These thinkers, like the advocates of the $300 house, 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. There is no point in offering people the chance to buy a cleverly designed house if they have no title to the land they occupy. Solving these problems will in turn demand a high degree of co-operation between people who do not always get on: companies and NGOs, designers and emerging-world governments.

However, the exciting thing about the emerging world at the moment is a prevailing belief that even the toughest problems can be solved. And a similar can-do moment, in the late 1940s, offers a striking historical precedent for the application of mass-production techniques to housing: as American servicemen flooded home after the second world war to start families, Levitt & Sons built Levittowns at the rate of 30 houses a day by mass-producing the components in factories, delivering them on lorries and using teams of specialists to assemble them.

Some emerging-world governments are beginning to realise that providing security of tenure is the only way to deal with the problem of ever-proliferating slums. And big companies that face stagnant markets in the West are increasingly fascinated by the “fortune at the bottom of the pyramid”. Bill Gross of Idealab reckons the market for cheap houses could be worth at least $424 billion. But in reality it is worth far more than that: preventing the Earth from becoming what Mike Davis, a particularly gloomy follower of Marx and Engels, has termed a “planet of slums”.

"The use of stackable designs would mitigate costs and reduce the footprint, reducing the land ownership requirement." One surprising but promising idea that emerged in the online discussion was the notion of designing multi-family dwellings to increase efficiency and scale—which some have argued will be necessary in densely populated urban slums. The key would be to avoid simply creating high-rise slums – like so many housing projects in the developed world – by following the $300 House tenets of fostering ownership (to eliminate the problem of criminal enterprises controlling the housing prices) and creating and preserving community.

"Innovations for the poor will ultimately be more successful if the poor are also part of the innovation." More inspiration and debate came from Gaurav Bhalla's post about co-creating the $300 House, rather than having the rich decide on a plan for the poor. He used the story of the Chulha, a stove designed to reduce soot, which kills millions every year. Crucially, the stove was co-created with those who would actually use it, through ethnographic research. The same must happen with any $300 House design.

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