Incremental Building and Housing Microfinance Part I: Building on Informal Housing Finance

It is widely acknowledged that the poor all over the world build incrementally. In the absence of any realistic formal housing options, the majority of low income households  around the globe build their homes progressively. Whether starting with a small unit and extending or building a larger unit slowly over time, incremental building is in its essence a housing finance strategy used by low income households to manage their housing process. Houses are constructed as funds become available and the structure itself becomes a savings mechanism.

In many parts of Sub-Saharan Africa, the incremental building process begins by saving blocks or bricks (after having acquired a place to build). In areas where cement blocks are common, people often purchase or produce blocks over time and store them on the building site. Where burnt bricks are used, kilns are often built and fired on-site where possible or the bricks are transported to the site to await future construction. The time between the acquisition of blocks or bricks and construction can often be extended, but this in-kind savings mechanism protects cash from household emergencies and consumption by converting it into building materials.

Cement blocks, although seemingly an expensive option, have the advantage of being able to convert relatively small amounts of cash into materials, by purchasing a bag or two of cement, acquiring sand and paying someone to make the blocks. The process is then repeated as more funds are available. Where burnt bricks are used, they can be a little more cash intensive whether they are purchased or brick makers are hired to produce them on site. When purchasing and transporting, it is usually done by the truckload to take advantage of economies of scale. When made on site, it is an intensive activity to mould, dry, stack and fire the bricks before they are damaged by rains. Burnt bricks are less commonly used as in-kind savings on a small scale as compared with cement blocks. Sun dried bricks are also a common and inexpensive building material, but they are rarely used as savings in-kind for an extended period without being converted into a structure and roofed  to protect them from the rain. (Stabilized soil blocks also exist as an option that is highly popular with housing practitioners, but has yet to become commonplace in the informal incremental housing processes for most low income households.)

Once sufficient blocks or bricks are on site, the incremental building process often continues to act as a savings mechanism in the form of the structure. Foundations can be laid and left on site for an indefinite amount of time. Walls are also built and left unroofed as resources are gathered for the next step. In areas where the soil does not permit burnt or sun dried bricks, low income households often build with cement blocks. Although this is often viewed as an unfavourable practice due to the cost per block, it actually works very effectively as a savings mechanism in the form of both the materials and an unroofed structure that is resistant to weather.

My first housing assignment in Africa was in the Democratic Republic of Congo (at the time it was called Zaire). When I arrived in Kinshasa, I noticed a prevalence of unroofed houses in the outlying sections of the city. This is a common sight in urban, peri-urban and even some rural areas around Africa and it represents one of the major challenges for households with low incomes: Roofing.

The roof is the most expensive single component of a house and it also poses a  challenge using in-kind savings methods. Unlike blocks, roofing materials cannot be saved progressively on the construction site because of the near certainty of theft. For households in small living quarters, the length of typical roofing materials makes them difficult to save and store in the security of the home. When they can be saved, items such as the ubiquitous corrugated metal roofing sheet have a high resale value and can easily be converted back into cash. This makes roofing materials less safe than blocks in times of family crisis, as they can be liquidated on short notice. Roofing is, therefore, a major use for housing microfinance products, because it represents a significant finance bottleneck in the housing process for many families.

Building a complete house and then moving in to occupy it is rarely an option for households with low incomes. The incremental building process takes place using two primary. The dweller can build a small, but essentially complete, unit and extend it later. Alternatively, many households begin building a large house over time, occupy it as soon as they deem it habitable, and then continue working on it while they occupy it. Many families occupy their houses as soon as the roof is in place.

Plans to extend can  be seen in "teeth" with which a planned extension will be joined to the initial structure. Sometimes the structure is built on part of a larger foundation, while at other times the foundation is extended as well. The "extension method" appears to be common with small families, with extensions taking place as the family grows.

In what I might call the "finishing method" floors, plaster, ceilings, electricity and other house components are  added gradually as the family resides in the house. It is not uncommon for dwellers to occupy their houses before even fixing doors and windows. In such cases, temporary coverings are used or window openings are blocked closed, with the doors and windows being added over time as additional funds become available.

HMF Hypothesis Three: Housing Microfinance will be most effective where there is a high prevalence of incremental building taking place.

Housing microfinance fits perfectly with incremental building. It fills a real finance gap and adds value to the housing process of low income households. Small home improvement or home construction loans can easily be applied various incremental building activities, such as roofing, finishing units, extending and other tasks. For housing microfinance to be effective, it must be able to achieve a level of scale that allows it to be implemented sustainably. This can be done where there is a vibrant informal housing sector and people are already building incrementally. This seems almost self-evident, but in practice it is not always the case. I have seen and personally been involved in housing microfinance initiatives that did not follow the lead of local housing activity and could not achieve scale and sustainability as a result.

When conducting market research, indicators of an active informal housing sector that may be one indicator of an area ripe for housing microfinance in Sub-Saharan Africa would include:

• Structures built to roofing level and left unfinished (or built to roofing level with durable materials and roofed with non-durable materials)
• "Teeth" extending from walls indicating a planned extension
• Structures that are built on only part of a larger foundation.
• Occupied houses with blocked-up windows, unfinished floors, etc.
• Visible savings in-kind in the form of materials (blocks, bricks, sand, stones, etc.) on construction sites.
• Block and brick producers (small scale producers)
• Hardware and building supplies shops
• Construction activity visibly taking place

Where the above are visible, there is probably a market for housing finance that will result in home improvements. Housing microfinance works hand in hand with incrementalism and small businesses and services that support construction. When viewed from the provider paradigm (see previous post on housing paradigms), incremental building and a fragmented, informal housing sector may be seen as the problem. When viewed from the supporter paradigm of housing, supporting incremental building efforts with housing finance can be seen as an effective means of helping low income households move forward in their housing process.

Housing Paradigms and Housing Microfinance

I had been working in the housing sector for 15 years before I came to realize that there were two very different interpretations of what housing is and how to approach it. I originally assumed that there was a housing problem (especially for the poor) and that the natural solution to it was to build low cost houses. Over time I began to realize that effectively building houses for the poor held a lot of inherent challenges and the response was not always what was expected. Sometimes people didn’t really like the low cost houses that had been designed for them. They also often did not like to pay for them. Demand was much lower than we anticipated when offering the opportunity for a “good house” to people who were living in  materially very poor houses. I was experiencing symptoms related to the “provider” approach to housing and a focus on the house itself rather than the house in the context of its dwellers' lives.

In Freedom to Build, John F.C. Turner described two ways to define housing: Housing as a noun and housing as a verb. Housing as a noun refers to the physical structure: The house as a product or commodity. Housing as a verb focuses on the universal activity housing.[1] The two definitions correspond to two different ways of looking at housing. Those who view housing primarily as a noun will focus on physical housing units. Those who view housing as a verb are more likely to look a housing as an on-going process and concentrate on the role of housing within the context of the household's broader livelihood. Turner’s second law of housing (see previous post) states that what is important about housing is what it does and not what it is. This could be seen as a sort of manifesto for those who see housing as a verb. How we look at and define housing ultimately shapes how we approach housing interventions.

Nabeel Hamdi built upon the idea of housing as a noun or verb in his book Housing Without Houses: Participation, flexibility and enablement. Hamdi outlined two paradigms of housing that are often in conflict: Provision and Support. The provider paradigm holds that the solution to housing deficits is to build houses. Providers tend to control the housing process to deliver housing units completed to a certain standard. Rather than controlling the production of units, Supporters look at the management of resources such as land, services and finance to assist dwellers to improve their housing, rather than controlling the production of units. Providers and Supporters differing approaches can be seen this diagram adapted directly from Housing Without Houses[2]:

(click on graphic to enlarge)

Someone (or an institution) can be identified as a predominantly a provider or supporter by the language they use and the interventions they design. Providers place a heavy emphasis on their role in building housing units. They maintain a significant level of pride and ownership in the finished physical product. Their interventions tend to keep control in the institution's hands and focus on the standards of the units. The houses produced are almost always complete units. Even when implementing an incremental building scheme that uses Supporter-like language, the Providers' incrementalism is often controlled and built in complete, stand-alone stages to a given standard . Given the choice between their standards and dweller choice that may compromise those standards, Providers will stick to the standards. Providers tend to see those engaged in informal housing services commonly accessed by the poor as suspect at best, but often as illegitimate actors in the housing environment who are a menace or the source of the problem.

Supporters are often a little more ambiguous about what they actually do, because there are a wide variety of possible support interventions and approaches. They usually do not, however, see themselves as builders and instead leave significantly more control of the housing process in the hands of the dwellers. Incremental building is accepted as a reality and part of a housing process. As such, supporters are comfortable with interventions based on progress that does not necessarily result in a "complete housing solution" to the Provider's standards. Whereas Providers tend to see housing as a problem to which they bring the technical expertise to solve, supporters believe that “most solutions exist in everyday practice, they only need to be recognized and the built on. They exist not as governments and professionals might like and might not be working as effective as we would need them, but they exist nevertheless.”[3] This results in supporters usually embracing informal housing activity rather than doubting its legitimacy.

Because two sides of the divide interpret housing differently, they do not see eye to eye when it comes to their respective interventions. Supporters are likely to question the ability of Provider interventions to sustainably serve low income households at scale. They may also raise concerns whether the Providers' solutions are appropriate and sustainable in the context of the dwellers' livelihood strategies. Providers in turn inevitably will point out that Supporter interventions do not meet their housing quality standards. It is at its roots a philosophical conflict on the nature of housing that can sometimes resemble dialogue and debate between opposing political parties.

I doubt that any person or institution holds a 100% Provider or 100% Supporter position. The paradigms are more like a continuum with provision on one side, support on the other and a range of positions mixing the two in between.

(click on graphic to enlage)

Now… this seems all highly theoretical and esoteric, but the housing paradigm of the implementer has a tremendous and visible effect on the design of housing microfinance products and services. The degree to which an institution focuses on the house that results from a housing microfinance loan is an indicator of its housing paradigm. I have heard staff from an institution that provides housing microfinance berate housing choices made by their clients. They insist that the institution must only support "quality" houses with their loans and  must therefore exercise greater control on loan use. The implication was that it was more important for the resulting house or home improvement to meet institutional criteria for satisfaction than the client’s own criteria for his or her housing process. This is a view from the provider paradigm. I have also heard others deeply question whether construction services attached to a housing microfinance loan were sustainable or even necessary: The view from the supporter side.

HMF Hypothesis One: The degree to which an institution engaged in housing microfinance holds a provider or support paradigm of housing will be evident in level of construction technical support offered as part of the product.

One key factor differentiating housing microfinance products is the level of construction technical assistance offered. Some products bear the name housing microfinance or home improvement loan, but in practice are little more than a consumption loan with the word housing tacked on. Other housing microfinance products exert significant control over the loan use and the clients' housing process. Putting the above hypothesis into the proposed housing paradigm continuum, it might look something like this:

(click on graphic to enlarge)

HMF Hypothesis Two: More CTA (provider approach) will result in a higher likelihood of achieving quality standards in the house resulting from a housing microfinance product, but the associated costs and complications in the delivery process will make it harder to achieve sustainability and scale while serving low income households (the double bottom line). Less CTA will make it easier to reach sustainability and scale, but will give less of a guarantee on the quality of the house or home improvement for which the HMF product was used.

(click on graphic to enlarge)

I see housing microfinance as a support intervention. In (what I believe to be) its purest form, it is a finance intervention that provides capital to households so that they can address a finance gap in their housing process. It corresponds to housing as a verb when it leaves control of the housing decisions to the dwellers. When housing microfinance is approached as a support intervention, I believe it has the highest likelihood of reaching scale and sustainability while serving low income households. As a housing microfinance product leans more towards the provider paradigm, I would expect 1) the delivery process to become more  complicated and stress capacity, 2) demand to decrease as dwellers lose control of their housing process and either 3) subsidization to make it affordable to households with low incomes (at the expense of sustainability) or 4) an "up market" drift to wealthier clients to recover high delivery costs (at the expense of social performance).

It is not only the housing sector that may tend to lean towards the provider paradigm. Even some MFIs envision housing microfinance that more resembles a beautiful house with a conventional mortgage , than affordable housing finance for low income households  engaged in an incremental building process. I believe effective housing microfinance for households around the poverty line will fit into the housing process in which they are already engaged, but that is another topic.

I welcome any feedback through comments on these concepts and working hypotheses, particularly opposing viewpoints. I would also like to recognize once more the work of Nabeel Hamdi in describing the housing paradigms and John Turner's concept of housing as a verb. Although liberally interpreted and applied, I am indebted to their work for its influence on my approach to housing and housing microfinance.

[1] Turner, J. & Fichter, R. eds. (1972). Freedom to Build, New York: MacMillan. 151.[2] Hamdi, N. (1995). Housing Without Houses: Participation, flexibility, enablement. London: IT Publications LTD. 27

[3] Hamdi (1995). 36

Turner's 3 Laws and Housing Microfinance

“THE MOST COMMON OBJECTION to changes in public policy which would increase a user’s control of housing at the expense of centralized institutions is that standards would be lowered as a result. The standards the objectors have in mind, however, are not something that can be achieved with available resources, but, rather, represent the objector’s own notion of what housing ought to be.”
- John Turner, Freedom to Build[1]

John F. C. Turner is one of the founding pillars of what has come to be known as the support (or enablement) paradigm of housing. Based on extensive experience and research, Turner introduced a whole new philosophy of housing in his books Freedom to Build and Housing By People: Towards autonomy in building environments. What made Turner’s approach radical was that he was able to view and describe housing from the point of view of the dweller, rather than that of the policy maker, housing expert or program designer. When seen from the point of view of the low-income earning dweller, housing decisions that seemed completely uninformed or illogical from the perspective of the social elite make perfect sense in the context of the household’s livelihood strategy and framework. Although his writing is now over 30 years old and predates the emergence of microfinance, Turner’s thought has significant relevance to housing microfinance for households around the poverty line.

In his introduction to Housing by People: Towards autonomy in building environments, Colin Ward presented what he described as Turner’s three laws of housing, with which he summarized the essence of Turner’s writing and thought. [2] I find these “three laws” to be both true and relevant in housing microfinance design. The following is a paraphrase of Turner’s laws:

Turner’s First Law: When dwellers control their housing process, it is better for them and the housing environment.

Turner’s Second Law: The important thing about a house is what it does in the life of the dwellers rather than what it physically is.

Turner’s Third Law: Dwellers can tolerate or accept a problem with their housing much more readily if it was a result of their own action or choice as opposed to that of another.
Traditional housing programs tend to focus on the provision of “low cost houses.” (Low cost often appears to be in relation to the income of the program designers and funders rather than to the actual affordability for people below or near the poverty line.) In such programs, there is a focus on the features of the house being provided. Critical housing choices of design, location, costs and delivery are made by the program designers. Although there is sometimes “consultation” with some representatives of the target group, the ultimate housing choice that is made by the individual participant households often revolves around whether or not to participate on the provider's terms. This type of housing program stems from what that designers believe housing ought to be.

In developing housing microfinance product and services, microfinance institutions can also be tempted to focus on the features of the house as the product. It is difficult to develop a focus on the low-cost house into effective housing microfinance for several reasons:

1. Cost: The focus on the house as a product (built to a certain standard) usually leads to a house that is too expensive for households with low incomes to afford. This can result in their inability to pay for the services or the need for heavy subsidy. Either of these will make it nearly impossible for a housing microfinance intervention to achieve and sustain service at scale, if it does not collapse altogether.

2. Demand: It is not uncommon for a provider to develop a housing product that it sincerely believes low income households need and will appreciate only to be surprised that demand for the product is not nearly as great as expected. When the product does not make sense from the client’s point of view, they will simply not use it and demand will be low. A housing microfinance program must meet effective demand if it is to grow and prosper as well as serve a social good. To do so, it must understand and approach housing for the position of the dweller that is going to pay for the services. What the outcome of housing microfinance loan means to the dweller is infinitely more important than what it means to the institution.

3. Customer Satisfaction: Problems  with a housing unit that was prescribed and delivered through a program or institution are not unlike malpractice for the medical field. If someone controls the process of building his or her own house, a crack in the wall can be easily tolerated or fixed. If an institution controlled the process, the same crack in the wall becomes a constant source of aggravation for the client and can negatively impact the relationship between the dweller and the institution.

Dweller control of the housing process is more likely to result in a house that fits with the household’s livelihood strategy, making it more likely to be sustainable at the household level. Housing microfinance can allow dweller control of the housing process and suit the individual household needs and desires. We often, however, start to impose upon clients the needs and desires of our institution in relation to their housing. In doing so, we run the risk of violating Turner’s three laws and creating a housing microfinance intervention that will fail to have significant impact. Although effective microfinance institutions tend to be market oriented and client responsive, they must still resist the temptation to have housing microfinance conform to what they believe housing ought to be instead of what it can be when control of the housing activity is left to the dwellers within the context of their own livelihoods, needs and wants.

[1] Turner, J. & Fichter, R. eds. (1972). Freedom to Build. NY: MacMillan, 148.

[2] Turner, J. (1976). Housing by People: Towards autonomy in building environments. NY: Marian Boyars, 5-6.