Providing cheap houses for slums might be an expensive idea

One way that social business has been succeeding is by providing inexpensive solutions for those in poverty. Products and services such as cheap heat, cheap stoves, cheap toilets and cheap fertilizer are some examples.

But what about cheap houses? Since so many poor people live in slums that only consist of shacks or tents, selling cheap housing to them would seem like a great social business.

An op-ed piece in the New York Times today warns against such a venture. Writers Matias Echanove and Rahul Srivastava from the Institute of Urbanology say that providing cheap housing for the poor could wipe out many jobs.

To start with, space is scarce. There is almost no room for new construction or ready-made houses. Most residents are renters, paying $20 to $100 a month for small apartments.

Those who own houses have far more equity in them than $300 — a typical home is worth at least $3,000. Many families have owned their houses for two or three generations, upgrading them as their incomes increase. With additions, these homes become what we call “tool houses,” acting as workshops, manufacturing units, warehouses and shops. They facilitate trade and production, and allow homeowners to improve their living standards over time.

None of this would be possible with a $300 house, which would have to be as standardized as possible to keep costs low. No number of add-ons would be able to match the flexibility of need-based construction.

In addition, construction is an important industry in neighborhoods like Dharavi. Much of the economy consists of hardware shops, carpenters, plumbers, concrete makers, masons, even real-estate agents. Importing pre-fabricated homes would put many people out of business, undercutting the very population the $300 house is intended to help.

Worst of all, companies involved in producing the house may end up supporting the clearance and demolition of well-established neighborhoods to make room for it. The resulting resettlement colonies, which are multiplying at the edges of cities like Delhi and Bangalore, may at first glance look like ideal markets for the new houses, but the dislocation destroys businesses and communities.