Affordable Housing in Emerging Economies and The Case for Steel

By Akbar Imran Butt

July the 16th, 2019 commemorates the 50th Anniversary of NASA spacecraft Apollo 11’s  moon landing. Astronaut Neil Armstrong, accompanied by Buzz Aldrin, descended from the lunar orbit to be the first human to ever set foot on the moon. During the 20th Century the pace of technological advancement was such that it took only 66 years for man to learn how to fly and then to land a spacecraft on a distant celestial body. However exponential growth in technology wasn’t the only thing that characterized this period, the 20th century culminated in an explosion of human population and mass urbanization.

During the 1960’s the population of the world was close to over 3 billion people. At the turn of the previous century, in the year 2000, it had swelled to over 6 billion. In a period of mere 40 years the population had almost doubled the size it was for all previous history. According to a report published by the United Nations Department of Social and Economic Affairs (see figure 1), the population of the world is expected to grow from 7.7 billion in 2019 to somewhere between 9.4 and 10.1 billion in 2050. As people started to move to urban areas in search of greener pastures, cities began to expand at an unprecedented rate. While 60 percent of people worldwide are projected to be concentrated in urban areas by 2030, cities around the world are finding it increasingly difficult to provide safe, adequate and affordable housing to a vast majority of its low and middle income populations. The McKinsey global institute estimates that if current trends in urbanization persist, a third of urban dwellers – 1.6 billion people – could struggle to secure decent housing by 2025.

Figure 1

 

Crises in the Developing World

Although the scarcity of affordable housing in cities is a global phenomenon, it is the emerging economies that suffer the most. This is partly due to the fact that almost 90 percent of the growth in the world’s urban population is expected to take place in low- and middle-income countries of Asia and Africa where cities will need to absorb close to 2.3 billion people by 2050.

According to the Bloomberg Global Housing Affordability Index (see figure 2), of the top 20 cities with least-affordable housing relative to income, seven are in Asia and six are in Latin America.

Cities around the world are finding it increasingly difficult to provide safe, adequate and affordable housing to a vast majority of its low and middle income populations.

This means that in countries of the developing world like India, Pakistan, Bangladesh and Nigeria, building affordable and sustainable accommodation is one of the biggest urban challenges of modern times. Mumbai, one of the largest cities in India has close to half a million vacant houses. This is despite the fact that demand for urban housing has skyrocketed in recent years. Reason, most of the incoming migrants find themselves unable to afford these housing units. Alternatively, they have to settle for informal settlements around the city. In Pakistan’s most densely populated metropolis Karachi, almost half of its 15 million residents live in slums. In recent years, the governments of these countries have taken initiatives to make affordable housing accessible for all. In India, the government expects to build 20 million affordable housing units by 2022 under the “Pradhan Mantri Awas Yojana (PMAY)”. A publically funded housing project. Similarly in Pakistan, where the country faces a backlog of around 10 million housing units, the government has introduced the “Naya Pakistan Housing scheme” under which it plans to build 5 million low cost homes in a period of five years. Even though efforts such as these are commendable, policy makers and key government figures need to completely understand the dynamics of the issue. At its core, affordable housing crises is a multifaceted problem. A new report by the world economic forum “Making Affordable Housing a Reality in Cities” sheds some light on the demand and the supply side aspects of the issue. An important highlight of the report is that even though the cost of land accounts for a major chunk in the overall cost of housing, design and construction costs do not lag far behind and can significantly affect affordability. This is especially valid for developing countries like India and Pakistan where the use of ground only traditional brick and mortar structures is the preferred form of housing construction. Innovations in design, construction and productivity can play a significant role in alleviating some of the major costs involved and can have positive social, economic and environmental impacts.

Figure 2

 

Steel, No Less Than a Miracle. 

Iron – first discovered by the people of Egypt and Mesopotamia as a gift of the gods falling from the sky – was initially used for making exquisite weapons and ornaments. Thousands of years later, iron workers discovered an accidental by product, steel. Infinitely recyclable, strong, durable and sustainable, its discovery helped shape the modern world. Today, steel is the fourth most commonly used metal in the world. From building construction to automobiles and home appliances it has become an irreplaceable part of our daily lives. So important, its per capita consumption is often considered a measure of economic success of a country.

Although the per capita consumption of steel in Pakistan is quite low compared to the developed world, the use of pre-engineered steel structures for large scale industrial buildings has taken off since recent years. This is primarily pertaining to the economic benefits that come along with the use of steel particularly for large span buildings. However, in residential construction, use of steel is still a novelty or rather something unheard of in Pakistan as in other developing economies of the region.

Although the per capita consumption of steel in Pakistan is quite low compared to the developed world, the use of pre-engineered steel structures for large scale industrial buildings has taken off since recent years..

Light gauge steel, also known as cold formed steel is a tried and tested construction material used in developed countries such as UK and Australia since decades. The technology involves use of off-site prefabricated panels made of steel studs that are ready to be assembled once they reach site. This enables manufacturers to standardize structural elements such as walls, floors etc. and achieve economies of scale while increasing productivity. With its innate properties such as a high strength to weight ratio, non-combustibility, termite resistance and cost effectiveness, Steel appears to be a good antidote to the very high design, construction and maintenance costs associated with the traditional brick and mortar structures. The use of light gauge steel can cut build times by up to 30 percent that can lead to indirect financial savings.

The realization that cold formed steel is the answer to growing need for efficient, safe and cost effective housing units in cities has led to an increase in popularity among professionals related to the construction industry. In October last year, the Indian Institute of Technology Hyderabad organized a workshop on ‘Affordable housing for all’ where experts spoke about the need to promote steel as a sustainable alternative to conventional construction practices. Emphasis was laid on the importance of light gauge steel for cost reduction and the positive impacts of its use on the environment. While there is an infinite potential to harness these properties to address the issue of affordable housing in emerging economies, there are certain barriers that need to be overcome first.

 

Challenges Unique To Emerging Economies

While countries worldwide are adopting different approaches to address the issue of affordable housing, there are challenges unique to emerging economies that intensify the severity of the crises. The governments of emerging economies find themselves financially and logistically incapable to do so much in so little time, they cannot deal with the crises on their own. If private sector can come up with innovative solutions, we can hope to address the issue through public private partnerships. However, for the technology to appear promising to private sector entrepreneurs, it needs to be accepted by the public.

The barriers to public acceptance of new technologies and materials particularly in the construction sector are more cultural and social rather than economic. It is an established fact that the mere availability of technology isn’t enough to motivate people to embrace it. This is despite the fact that there might be a substantial monetary benefit to gain from it. Since time immemorial, brick and mortar structures are the pre dominant way of housing construction here in the developing world. People have no patience with fancy materials that are contradictory to their previous ways of living. For them, building a house means making a once in a lifetime investment and they are certainly not prepared to risk it by adopting an approach different from their forefathers and better off peers. One reason behind the success of steel in the industrial sector is that instead of general population, the end users happen to be well informed national and multinational co operations competing with each other to give best value to their customers while keeping expenditure at bare minimum. With obvious benefits, steel is the material of choice.

Figure 3

 

This issue is further augmented by the presence of Institutional voids. A term coined by Harvard University professors Tarun Khanna and Krishna G. Palepu in their article which refers to the absence of credible intermediary institutions, regulatory systems, accessible while dependable sources of communication, redress and contract enforcement mechanisms that are essential for businesses to operate and thrive and are often taken for granted in the developed world. This coupled with turbulent market conditions provides poor ground for profits especially for tech based firms. It boils down to the absence of one fundamental element that is vital for businesses to thrive, a relationship of trust between prospective buyers and sellers.

 

The Way Forward

While Governments of developing countries are inevitably going to rely on the private sector to address this issue, policy makers need to draft policies to create conditions that will encourage entrepreneurs to venture in the field of new technologies. Priority should be given to institution building to make it easier for people to do business in the country.

On part of the entrepreneurs, they need to finds ways around the barriers that might exist. There is a need to understand that in emerging economies, people have well defined norms which they seldom deviate from and before technology can become useable, a whole bunch of stuff has to happen. This basic understanding of the functioning of a society is often what distinguishes a successful entrepreneur from an unsuccessful one. The key lies in adopting a business strategy and planning that is tailored to the underlying conditions of a particular economy. For now, increasing awareness among people about potential benefits of new technologies particularly steel construction can help pave the way.

There are many socioeconomic benefits that come along with a well-managed urbanization, with that being said if entrepreneurs can come up with a way to develop the adoptive and absorptive capacity of emerging markets while addressing the functional fixedness of the society, it would be – as Neil Armstrong said when he first set foot on the moon – “One small step for man, one giant leap for mankind”

About the Author

Akbar Imran Butt is a civil engineer by profession who is working in the industrial steel buildings sector for the past few years in Pakistan. Apart from being a steel enthusiast, his research interests include entrepreneurship and use of technology to solve real world problems. He can be reached at: [email protected]