8.04.2010

Fortune at the Bottom of the Pyramid, the Affordable Housing Version


The premise of C.K. Prahalad's classic, "Fortune at the Bottom of the Pyramid," is that figuring out how to serve the world's poorest is a great way to hone your firm's competitive advantages because clearing a margin with a customer base that makes a dollar a day forces you to strip out any inefficiencies. I wonder if this principle will catch on in the homebuilding industry. Right now, affordable housing costs more than regular housing, developers are forced into building it instead of doing it of their own accord, and no one seems happy to the point that even affordable housing advocates are searching for new terminology to describe what they are advocating. (The leading alternative appears to be "workforce housing," to distance themselves from affordable housing as a subsidized sop to the undeserved.)

This was the premise behind an affordable housing project in Los Angeles, and I am wondering why it shouldn't be the dominating premise behind affordable housing construction in general. Those who need affordable housing, and the advocates that claim to be advocating for them, should want affordable living more so than affordable housing, which means adding transportation and utilities to the household budget equation. And, a la Prahalad, developers coerced into building affordable should welcome the opportunity to innovate their way towards producing something that earns them a profit and satisfies the needs of affordable housing end-users. Finally, rather than imposing burdensome regulations on everyone involved, governments could more plainly state what affordable living requirements they are aiming for (monthly payment for housing + transportation + utilities, baseline standard of quality and durability) and what concessions they are willing to give to developers (density bonus, tax abatement, expedited permitting) and then get out of the way and let those developers figure out how to make it happen.

I realize things are more complicated than this, so I am not suggesting that it is this easy. But I do think an attitude adjustment is in order. Would that more in the affordable housing world read some Prahalad; if they did, maybe more and better affordable housing would get built, developers would make money, governments and advocates would get what they want, our planet would be better off, and innovations may even leap to market housing and benefit the rest of us.

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