Tag Archives: economics

Slummin’ it at the 2014 FIFA World Cup

By Judy Park, Analyst

Attending the World Cup is no easy task. From competing with millions of global fans for randomized lottery tickets at 5 AM in the morning to paying for transport, lodging, and entertainment, it takes dedication. And a small fortune.

But as I watch euphoric, emblazoned fans fill the corners of my low-def screen, it’s clear that it’s worth it.

USA USA USA USA USA USA USA !

To give you an idea of the actual cost: an all-inclusive package from a middleman vendor starts at $5000 per head. For anyone not a relative of a FIFA higher-up or the pampered staff of an oil company, it is tough going; most hotels and transport options are booked up a year before the first ball hits the turf.

So how’s an average entry-level twenty-something, and those of similar budget, to partake?

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Industry Trends: Micro Houses as a market viable solution?

By: Duong Huynh, Project Manager

A home – a beacon of economic and personal stability to which one returns after a hard day’s work to rest and relax in relative privacy. Such a beacon takes on shapes, textures and sizes as malleable and diverse as the ecosystems in which their owners reside.

Two generations of Hong Kong resident in a typically sized "home" for the working class.

Hong Kong: Two generations of Hong Kong residents in a typically sized “home” for the working class. Part of an intriguing series of photographs by Benny Lam, posted via the Telegraph.

Traditional Mongolia ger (photograph property of AHI).

Ulaanbaatar, Mongolia: Traditional ger housing (photograph property of AHI).

6 Fort Street, Quincy MA. 34 units of affordable family housing designed by Davis Square Architects. Adaptive reuse from a church and an office building.

Massachusetts, US: 6 Fort Street, Quincy. 34 units of affordable family housing designed by Davis Square Architects. Adaptive reuse from a church and an office building.

Dubai: Citizen housing constructed by the Mohammad Bin Rashid Housing Establishment (an AHI client).

Dubai: Citizen housing constructed by the Mohammad Bin Rashid Housing Establishment (an AHI client).

For centuries, markets and their participants have all subconsciously lived by a practical and logical rule when it comes to housing obtainment: money = location, quality of housing, and space. Hence, affordability, when left to the market and without policy or financial intervention, fluctuates depending on those three critical factors. Cheaper homes possess any single or combination of (a) distance far from centers of commerce and jobs, (b) quality sub-par to mid-market products and/or (c) size smaller than mid-market homes. Let us assess each of the three components exclusively:

  • Location: critical in accessing employment and critical services such as healthcare, food, and education.
  • Quality: critical to health via its direct link to structural integrity, ventilation, and electrical and plumbing systems, among other key engineering, visual and operational components of a home.
  • Space: critical to essential needs (i.e. enough room to sleep, eat, bathe and rest in) and sense of comfort.

Upon the above inspection, Space stands out as a component most flexible in facilitating affordability. People can be tolerant and even preferable of living with less, but still functional, space if they can trade that for a quality and structurally sound home within a desirable location.

Enter the recent active research, dialogue and breakthroughs in micro housing design, development and construction. Oh wait – what’s a micro unit, you ask?

Micro Unit 101

Now on to the imagination-wired feast for the eyes.

Winner of NYC Micro Units competition. Also utilizes modular construction technology. nArchitects (though I don't see much anarchy in the monochromatic style of that design... or is it just the light?)

Winner of NYC Micro Units competition. Also utilizes modular construction technology. nArchitects (though I don’t see much anarchy in the monochromatic style of that design… oh, is it just the lighting?)

Micro apartment-thumb-535x359-103772

Micro apartment unit on display last spring at the Boston Society of Architects. ADD Inc. design.

“Manhattan Micro Loft” by Specht Harpman Architects, winner of the Architizer A + Award in the Small Living category. Though, in NYC, the savings from the small footprint of this home is nothing compared to the cost associated with the roof access to open air critical for its design success.

“Manhattan Micro Loft” by Specht Harpman Architects, winner of the Architizer A + Award in the Small Living category. Though, in NYC, the savings from the small footprint of this home is nothing compared to the cost associated with the roof access to open air critical to its design success.

Often times, it is difficult to draw that thread-thin boundary between certain micro-homes and SRO’s (single room occupancy units).

Micro home with adjustable/foldable furniture in San Francisco, CA.

Micro home with adjustable/foldable furniture in San Francisco, CA.

Rendering of a typical SRO with a shared bathroom.

Rendering of a typical SRO with a shared bathroom.

Oh wait.. did I just mix up the captions of the two above images? I honestly can’t tell.. The true difference to a normal consumer is in the finishings, furniture accessories and branding.

Here's a real life SRO picture to take the sheen off of those shiny renderings. It's definitely a decent living arrangement, but nothing close to glamour.

Here’s a real life SRO picture to take the sheen off of those shiny renderings. It’s definitely a decent living arrangement, but nothing close to glamour.

A marked success of the innovators in micro-housing design definitely lies in the branding they’ve built up. As soon as you say “micro houses” in New York, Boston, or San Francisco, you will draw the attention of young working professionals (I am looking at you, yuppy bachelors) who consider the concept cool and trendy. In fact, many of them have signed on the dotted line to cement their interest in micro homes.

Check out Factory 63. A hip, young, and classy brand and development in Boston’s Innovation District (whose name is derived from a trendy rebranding of the historically industrious waterfront, courtesy of former Boston Mayor Tom Menino). The project features Boston’s smallest units to date – result of a permitting and zoning exemption from the Mayor’s team. When someone asks you where you live, just simply answer “Factory 63.” If they are not hip, they will respond “You live in a factory?” And if they are hip, “Cool dude, you live in a factory!”

Versatility for the win.

Versatility for the win.

They sure sell up the Small factor.

They sure sell up the Small factor.

Of course, the fact that YOU lie at the heart of the project's success, that's also played up.

Of course, the fact that YOU lie at the heart of the project’s success, that’s also played up.

The future of micro houses, their market affordability, and to-be-tested practicality and functionality are still unopened cards. However, the research and exploration surrounding them, and other housing innovations, are critical to keeping the affordable housing world at a competitive forefront alongside the rest of the residential real estate market.

And now for my 5 seconds of glamour and glitz as I play up my project team’s 2nd place entry for last year’s Boston Affordable Housing Development Competition.

BAM! Interlocking micro units to save space. Please ignore the non-glittery design. Remember, practical = rooms are are not shiny!

BAM! Interlocking micro units to save space. Please ignore the non-glittery design. Remember, practical = less sheen!

Okay, so there was not really much glamour and glitz in the above, but it was practical and we had a sustainable pro forma that was real AND works! Unfortunately, in the world of design, pro formas are not considered pieces of art and cannot be readily displayed to draw immediate gasps of awe from visually-inclined audiences. And thus ends my moment of glory.

 

How to solve India’s housing shortage: build at scale

By Janaki Kibe, AHI South Asia Associate

I attended The Indian School of Business Affordable Housing Conclave 2012 in Hyderabad a few weeks ago. Over the course of an intense, yet inspiring, day a group of developers, planners, architects, policymakers and academics discussed a range of topics including private-sector driven business models for affordable housing, public policy imperatives for facilitating affordable housing, and the role of finance in affordable housing. While this group of motivated players identified common challenges to developing affordable housing at scale—government bureaucracy, corruption, land prices—there seemed to be some disagreement about the ways to resolve these challenges. Some argued that the government should simply step away from the housing sector – let purely market-driven forces pave the way ahead. While I do agree that the Indian government tends to be more of a hindrance than a facilitator in low-income housing development, I think there is something to be said of their expansive network. If only there was a way to transform the government from the inefficient monstrosity that it is today and run it like a lean, private company leveraging their connectivity and reach into different parts of the country.

The need for affordable housing in India is unarguably acute. Current estimates predict a housing shortage of 25 million housing units. (Note: this is likely an outdated and conservative estimate.) Assuming an average price of construction cost of $10,000/unit, affordable housing in India represents a US$250 billion market opportunity. This potential market opportunity has recently driven (more adventurous) developers and financiers to enter the low-income housing market in India. While some headway has been made in the construction and financing of low-income housing, serious challenges remain to increasing the scale of affordable housing construction and finance in India.  And scale is the necessary element for combating such a severe housing shortage.

On the supply side, lengthy government permitting processes often hurt low-income housing developers. Drawn-out timelines reduce developer returns, and contribute to the sector’s relative unattractiveness to suppliers. Low-income housing developers use 12-15 months as the optimal product delivery time because of the difficulties of getting longer financing, much faster than traditional higher income housing developers. The quicker delivery time means that low-income developers are more significantly affected by permitting and construction delays. Additionally, permitting rules and processes vary significantly across India, making it difficult for developers to operate at a large, pan-India scale.

Role of the public sector: To enable growth at scale, the government must reform its own processes—especially permitting. One attendee, Jaya Kumar, the Managing Director and Chief Operating Officer of the low-income housing construction group Value and Budget Housing Corporation http://www.vbhc.com/, encouraged public opinion to drive reform in the permitting process. He stressed the idea of streamlining and computerizing the permitting process. Computerization would ideally also help increase transparency and reduce corruption in the Indian housing sector. Regardless of the exact methodology, it is clear that the government’s role should be as a facilitator, rather than as an impediment, to affordable housing.

For housing finance companies (HFCs), the challenge remains in developing reliable, scalable credit assessment models.  Currently, many low-income HFCs use field-based credit assessment models to gauge customer repayment capacity. While these have been successful at assessing risk at a smaller scale they are laborious and costly, which leaves some question regarding their ability to be scaled-up. Perhaps there is room to borrow some of the institutional capacity of microfinance institutions (especially those that have been able to reach a wide audience) in assessing borrower repayment capacity for this market and reducing home loan default rates.

An alternative approach suggested by Professor Richard Green of University of South California’s Sol Price School and Public Policy and the Marshall School of Business stressed that clearer titles and greater down-payment requirements could help reduce default rates. If people have equity to protect, they won’t default! Sounds a bit like the old push for “skin in the game.”

While I think that these tools are effective in the US—where titles are generally quite clear and low downpayments have contributed to high default rates—I am not confident that these are the right tools for the Indian context. In India, there is a tenure spectrum, and getting to the root of land titling disputes is akin to engaging in a horrific divorce battle that is likely to take 30+ years. Additionally, the aspiration to own a home in India is so strong that people do feel that they have “skin in the game” even if they have not paid large down payments. From my field experiences, people default on home loans not because they don’t have “skin in the game” but because of weak income situations.

More than land titles and down-payment requirements, I think we need to design better credit assessment models. Centralized databases where borrower credit history (including loans from moneylenders) can help reduce some of the information asymmetry that plagues the current low-income market in India.

At the end of the day, questions remain: how do we scale up small successes to address a 25 million housing unit shortage? How do we leverage private and public sector capacities to benefit low-income groups? How do we regulate an industry whose customer base is highly informal?  

The future of shopping in Africa: Malls

By Evans Essienyi, AHI West Africa Associate

From Accra, through Lagos, Nairobi, to Cape Town, the way of shopping for the middle class is being revolutionized. The days of the open market will soon be a thing of the past. Malls are taking over from open markets. In major cities in Sub-Saharan Africa, real estate developers are building regional malls to cater to the shopping needs of the middle class. Enclosed malls with clean floors, metal or steel shelves glass doors are competing strongly with the open markets that we have been used to.

Growing up in Ghana, I shopped at Kaneshie, Makola and Sukura Markets for grocery and personal items. At these markets, the sellers, predominantly women, displayed their wares on tables under sheds. Some sellers also put their items like vegetables in baskets and placed them on the ground. One could hear the screams of the women calling in a number of local languages to get the attention of shoppers. Sometimes I returned from the market with different kinds of scents on my body or even my clothes soiled with palm oil or juices from tomatoes. These were the pleasures and hazards of going to the open market.

Throughout Sub-Saharan Africa, the middle class is growing in number and in their purchasing power. With increased income comes a demand for a corresponding “NEW” way of life. The shopping malls are fast becoming the “new” way of life for the middle class in Africa. This “New” way of life manifests in forms such as wearing internationally branded clothes, shoes, dressing accessories, home appliances, electronic gadgets etc.

And these are the items that the emerging shopping malls are offering the Sub-Sahara African middle class. Mall shopping is fast becoming a status symbol. For example in Ghana, it is becoming trendy for young men to take their girl friends to the Accra mall to score points.

Developers are tapping into this growing interest, and developing shopping malls across most capital cities in Sub-Saharan Africa. Some of the mall developments are led by real estate developers ambitious to capitalize on improved investment opportunities, while some are also initiated by established retailers who desire to expand into other countries.

This is especially interesting as an example of multi-national property development in Africa, mainly financed from Southern Africa. While this phenomenon has not reached the affordable housing sector  – yet. As the commercial and luxury markets become more crowded, there might well be business knowledge transfers from these companies into the residential sector.

While their prestige is declining in the developed world, shopping malls seems to be the trend in Africa, and it appears they have come to stay. Given the rate at which malls are springing up on the continent, it is only a matter of time that the malls will supplant the open markets. Whether this is a good thing or otherwise will be judged by posterity.