How an innovative Catholic charity has made home ownership a reality for 130,000 of Ecuador’s poorest families
BY PAUL CONSTANCE
In the age of $10 cameras, $40 stereos and $300 computers, how much should people expect to pay for a basic house?
In Guayaquil, a city of 2 million people on Ecuador’s Pacific coast, the answer is $530. That is the price that Hogar de Cristo, a Catholic social services organization, charges for a single-room house with bamboo walls and a zinc roof (delivery and assembly cost a little more). If you don’t have $530, Hogar the Cristo will finance the house interest-free over three years, for around $14 per month.
Not surprisingly, in a city where 40 percent of the population lives below the poverty line, these houses are wildly popular. Hogar de Cristo sells an average of 50 of them per day, and demand still outstrips supply. Entire hillsides in the slums that surround Guayaquil are covered with identical Hogar de Cristo homes. So far more than 130,000 units have been sold in Guayaquil and nearby towns.
The business model behind this phenomenon would be familiar to students of Asia’s famous manufacturers of consumer electronics. Hogar de Cristo’s managers are obsessed with cutting costs and increasing production while preserving quality. They drive hard bargains with suppliers and constantly experiment with new tools and methods to speed assembly times. They make intensive use of computers to manage inventory, process customer records and reduce overhead. In short, they do what every modern business must do to succeed in a highly competitive market.
But Hogar de Cristo has no competitors. Its self-defined market—people who live on less than one dollar a day—is of little interest to Guayaquil’s for-profit homebuilders.
“Our goal is the development of the whole person, the family and the community,” says Father Robert Costa, S.J., the organization’s director. “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.”
Houses are only the most visible of Hogar de Cristo’s “products.” Once they buy one, customers tend to sign up for other services including health care, microcredit, education and business assistance. (Around 40 percent of Hogar de Cristo’s customers are women head of households.)
LESS THAN COST
These services are provided for free or for modest fees that offset most but not all of their costs. The full production cost of the $530 Hogar de Cristo houses, for example, is around $700. And if Hogar de Cristo determines that a family can’t afford the $14 monthly payment, it will adjust the price down even further, to as little as zero if necessary. The lost revenue is made up with donations from local and international sources.
The $530 price isn’t arbitrary: it is based on Hogar de Cristo’s estimate of how much the poorest of the poor can afford to spend on housing. “Our goal is to never turn a client away for financial reasons,” explains Father Costa. “So we have to keep costs to a minimum.”
Soft-hearted charity and hard-nosed business acumen do not easily coexist within the same organization. But this combination has enabled Hogar de Cristo to expand the definition of low-income housing in a way that offers valuable lessons for governments, nonprofits, and businesses focused on people at the base of the socioeconomic pyramid.
Like many Catholic organizations, Hogar de Cristo was the brainchild of an individual priest. The late Father Alberto Hurtado, S.J., founded the original Hogar de Cristo in Chile in 1944 with an initial focus on providing affordable housing to the poor. Other Jesuits set out to replicate this ministry in Guayaquil in the early 1970s. Instead of imposing a particular house style, the leaders of the new organization decided to adapt and improve the basic bamboo-walled structure traditionally built by poor people in Ecuador’s swampy coastal regions.
According to Father Costa, this decision was both functional and philosophical. Bamboo is a durable, versatile and fast-growing material that grows locally and requires few inputs. Bamboo is also the cheapest building material in Ecuador’s coastal region, and thus crucial to Hogar de Cristo’s fundamental goal of affordability.
As they began to buy materials in bulk and to experiment with the basic house design, Hogar de Cristo’s managers looked for ways to standardize the production process and lower costs. After years of buying lumber and bamboo in irregular lengths and thicknesses, for example, they began to work exclusively with suppliers who were willing to deliver materials pre-cut to standard lengths.
The result was less waste and more productivity among the workers. “Six years ago we were wasting around 20 percent of our material,” recalls Miguel Viteri, Hogar de Cristo’s chief of production. “Today we waste less than 4 percent.”
Noticing that workers spent too much time bent over hammering nails, the managers devised a system of assembly platforms equipped with compressed-air nail guns. To speed up the process of nailing bamboo to wooden frames, they built metal templates that quickly align the various pieces of wood and bamboo.
Today, Hogar de Cristo’s assembly plant is a marvel of just-in-time manufacturing. Trucks piled high with planks, wooden posts, zync sheets and flattened bamboo rumble into one end of the facility a few times per day. The warehouse area is relatively small, because materials are quickly moved to a large covered workshop where wall panels and other components are assembled with astonishing speed. Every 15 minutes or so a mid-size truck pulls up and forklift drivers quickly load it with bundles containing all the pieces of a semi-assembled house. The entire operation employs only 60 workers.
Members of the family that has purchased each house watch as the truck is loaded, and then ride in the front, in order to direct the driver to their lot. During a recent visit by a reporter, a young woman who declined to give her name watched with palpable excitement as her future house was hoisted onto a truck. “My husband and I will no longer have to live in the same room with my mother-in-law!” she said.
The financial side of Hogar de Cristo’s housing program also looks like an assembly line. Every morning several hundred applicants gather in a large waiting area next to a full-sized model of the Hogar de Cristo house. As some applicants inspect the model, others read brochures or watch video presentations about the purchase process. Still others make their way trough a series of small booths where loan officers conduct interviews and type customer data into computers.
Denisse Avilés, sales director, explains that applicants must have identity documents for all family members and a “Certificate of Possession” (the first step in obtaining full legal title) for the lot on which the house will be located. In most cases they must also have a co-signer or guarantor for the loan. Applicants are interviewed by loan officers to determine the age, health, schooling, and employment situation of each member of the family. The information is processed using software that helps loan officers calculate how much of a subsidy a particular family should receive. Officers also conduct home studies and field visits to verify information about each applicant.
Avilés said that around 45 percent of all applicants pay the standard $530 price for the house, and the rest receive larger subsidies. Because of Hogar de Cristo’s commitment to serving only the lowest-income customers, sales agents turn away poor families with even moderately better means. “If we determine that several members of a family are earning more than $3 per day, we refer them to municipal housing programs that have higher income requirements,” Avilés said.
Despite its popularity with customers, Hogar de Cristo has been criticized for selling what many Ecuadorians considering undignified houses. With their rough plank floors and lack of glass windows, electricity or plumbing, the single-room houses are indeed Spartan. And for many Ecuadorans, the bamboo walls of an Hogar de Cristo house are a reminder of a life they hope to escape.
“Bamboo is a symbol of poverty in this area,” says Father Costa. “And in fact, I’m not proud of these houses. People shouldn’t have to live in these conditions. But we say, ‘Better a wood-and-bamboo house today than a brick house five years from now.’ Our view is that people who don’t have a roof over their heads can’t wait. Some of our applicants are literally living under pieces of cardboard. So our goal is to help them take that first step toward improving their living situation.”
Moreover, Costa points to a consistent pattern followed by families that buy an Hogar de Cristo house. First they tend to make modest cosmetic improvements such as painting or planting flowers and shrubs. Then they buy bamboo panels to wall-in the posts holding up the house. Since these are purposefully cut to be ceiling-high, this instantly doubles the house’s living area. Eventually, as they are able to save up and buy materials, owners replace the bamboo with masonry, pour a concrete floor on the ground level, obtain electricity hookups, and add plumbing.
Within five to seven years, many Hogar de Cristo houses are no longer recognizable as such. As they improve their homes, owners also exert pressure on the municipal government to pave roads and extend electricity, water and sanitation services. Father Costa points with pride to Guasmo, a neighborhood on the outskirts of Guayaquil that was little more than a shanty-town 20 years ago. Hogar de Cristo sold hundreds of houses in Guasmo, and today, nearly all have been turned into solid concrete block and brick structures that are worth many times what their owners paid for them. The streets are paved, and the municipality has installed basic services.
In this respect, Hogar de Cristo confirms what economists and development specialists have argued for years: that facilitating home ownership is one of the surest and fastest ways to help people out of poverty.
Today Hogar de Cristo is once again redesigning its business model to reflect changes in the marketplace. In recent years the price of raw materials—lumber in particular—has increased sharply as Ecuador’s coastal forests have been depleted. As a result, Hogar de Cristo is experimenting with the use of other inexpensive materials. Two years ago it began to test the use of simple steel frames as an alternative to wood. Although they are considerably more expensive, steel frames provide a much more solid and durable basis for the gradual construction of a permanent home.
As with the wood models, the new steel frame houses are initially sold with bamboo walls. But instead of being built on posts, the steel houses are assembled on a poured-concrete foundation. They include two doors and three windows, and they have a larger floor area than the wood model (36 m2 as compared to 24 m2). The result is a “starter house” that is much closer to the ideal that most families have in mind.
By applying the same rigorous cost-reduction methods, Hogar de Cristo is able to produce the steel frame house for around $1,400, as compared to $700 for the traditional one. The organization’s managers believe only around 10 percent of their potential customers can afford such a house at this point, so they are partnering with other organizations to develop creative financing options. To date, Hogar de Cristo has sold a total 167 metal frame houses.
Hogar de Cristo’s designers are also experimenting with an all-bamboo model that uses concrete footings and cement-filled bamboo posts. The approach is similar to earthquate-resistant bamboo houses pioneered in Colombia.
WIDENING THE GAP
Rising prices for materials are also widening the gap between Hogar de Cristo’s costs and its revenues. Part of that gap stems from the fact that around 20 percent of Hogar de Cristo’s house loans are in arrears. Though funds received from donors cover most of that shortfall, Hogar de Cristo’s managers acknowledge that better repayment levels on its housing loans are not only attainable but essential, if the organization is to continue growing in a self-sufficient manner.
Last year, Hogar de Cristo received a $500,000 loan from the Inter-American Development Bank’s Social Entrepreneurship Program that will be used to simultaneously expand its steel frame house and microcredit product lines while strengthening its financial management systems to reduce bad loans.
“Hogar de Cristo is a real innovator when it comes to producing affordable houses in large volumes for low-income families,” said Gabriela Torres, the SDS specialist who designed the project. “We want to help them sustain this extraordinary track record and achieve the financial self-sufficiency that will enable them to grow and meet future demand.”
Based on her conversations with Hogar de Cristo’s managers, Torres believes that the organization can improve its repayment levels by strengthening loan management and debt collection activities. She and other IDB specialists are currently working with Hogar de Cristo to implement several of these changes.
As evidence for Hogar de Cristo’s customers' willingness and ability to repay loans, Torres points to the organization’s thriving microcredit program, which was launched four years ago. “They’ve lent almost $7 milllion to some 8,000 women since 2002,” Torres said. “Their repayment rate is around 97 percent, all thanks to excellent management.”
Republished with permission from IDBAmerica, the magazine of the Inter-American Development Bank.