Sunday, April 15, 2007

Standardizing Production Lets Charity Sell 130,000 Homes for US$530 or Less to Ecuador’s Poor

Source: IDB America

Hogar de Cristo, a Catholic social services organization originally founded in Chile in 1944 by the late Father Alberto Hurtado, S.J. to provide affordable housing to the poor, has standardized its entire operation in Ecuador to produce cost-effective and remarkable results. Inspired by manufacturing business models, the managers at Hogar de Cristo implemented a variety of changes to their production process in order to reduce overhead, use materials more efficiently and reduce waste, and more recently, experiment with alternative materials. Today, the charity is selling an average of 50 houses per day in the city of Guayaquíl and its environs, but the demand exceeds the supply.

Located on Ecuador’s Pacific coast, Guayaquíl is a city of 2 million inhabitants, 40% of whom live below the poverty line. Hogar de Cristo serves a self-defined market: people who live on less than one dollar a day. The charity’s director, Father Rober Costa, S.J., says that the enterprise’s goal is “the development of the whole person, the family, and the community.” He explains, “We start by putting a roof over people’s heads, but our ultimate purpose is to strengthen families by helping to meet their material, physical, educational, and spiritual needs.” In addition to houses, Hogar de Cristo also offers services including health care, microcredit, education, and business assistance. Since 2002, Hogar de Cristo’s microcredit program has lent almost US$ 7 million to around 8000 women, with a loan repayment rate of 97%. The services are provided for free or for modest fees that recoup only partial costs. Likewise, the full production cost of one US$530 house is US$700. Although the US$530 price tag—which translates into US$14 monthly payments interest-free over three years—is based on Hogar de Cristo’s estimate of what the poorest of the poor can afford to spend on housing, the charity never turns clients away for financial reasons and will reduce the price further, even to zero, if necessary. Local and international donations help make up for the lost revenue. Approximately 45% of applicants pay the standard US$530 price, while the rest receive larger subsidies.

According to Hogar de Cristo’s chief of production, less than 4% of materials are wasted. The one-room houses are basic bamboo structures with zinc roofs. Bamboo is the cheapest building material in Ecuador’s coastal region and it is both durable and fast-growing. The charity now works exclusively with suppliers who deliver materials pre-cut to standard lengths, thereby standardizing the production process and reducing costs. Metal templates on an assembly platform in the charity’s warehouse, which employs 60 workers, align pieces of wood and bamboo which are then put together with compressed-air nail guns.

Although the slums of Guayaquíl are enveloped in Hogar de Cristo houses, some Ecuadorians consider the structures, with their lack of glass windows, electricity, or plumbing, to be inadequate and undignified. Father Costa concedes that he is not proud of these living conditions, but explains that facilitating home ownership is the best way to help people out of poverty. He reports a discernable pattern of development within five to seven years of a home purchase: Families begin with cosmetic changes to the home, such as painting it and planting flowers. Next, they wall-in the ceiling-high posts that hold up the house, thereby doubling their living space. Gradually, they replace the bamboo with masonry, pour a concrete floor on the ground level, and add electricity and plumbing. As owners improve their homes, they pressure the municipal government to develop infrastructure by paving roads and extending electricity, water, and sanitation services. For example, Hogar de Cristo sold hundreds of houses to the people of Guasmo, once a shanty-town right outside Guayaquíl, and almost all have subsequently been turned into solid concrete block and brick homes, the streets have been paved, and the city has installed basic services.

In reaction to the sharp depletion of Ecuador’s coastal forests, Hogar de Cristo has begun to produce a slightly larger steel-frame house. Because steel is considerably more expensive than bamboo, the production cost for this model is US$1400, a price only 10% of potential customers can afford to pay. Only 167 steel-frame houses have been sold. Last year, Hogar de Cristo received a US$ 500,000 loan from the Inter-American Development Bank’s Social Entrepreneurship Program. This money will be used to expand the steel-frame house and microcredit programs as well as its loan management and debt collection activities.

For Discussion: Are development dollars better spent in projects implemented by charitable organizations based in the community they serve? Are they better spent when projects are not managed by intermediaries?

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