Value Creation for Low-Income Homebuilders

This post was written by Habitat for Humanity's Terwilliger Center for Innovation in Shelter and was Originally Published on the Vikāra Institute's website. 

In the second blog in the series, the authors focus on the importance of using a retail distribution market systems lens to gain insights into the business realities of selling construction products and services to low-income customer segments. For example, low-income customers buy in smaller lots and often have important considerations related to decision-making, coping strategies, and trust that require specific business strategies and tactics. The blog examines a few examples from TCIS’s work in relation to how they applied systemic thinking related to retail distribution to improve housing outcomes for incremental builders.

Over the past five years, the Terwilliger Center for Innovation in Shelter has partnered with many manufacturers and building services providers, articulating the value they can create for low-income consumers (incremental homebuilders is our preferred term in the housing system), and working with them to manage the risks of selling to an unfamiliar market segment.

Creating value for incremental homebuilders is one of the most effective ways to create inclusive housing markets. This idea is one of the most powerful findings from our housing market systems development work. Targeting the retail-distribution function is a good place to start. (By that we mean the combination of firms that produce, transport, warehouse and provide goods and services to low-income homebuilders).

Why retail-distribution? There is a growing body of evidence that for markets to evolve in ways that benefit disadvantaged communities, the retail-distribution function must deliver stronger value to low-income consumers. In doing so, it can become a key business-influencing function within the market system.

But for this to happen, retailers, distributors and manufacturers must think beyond a trading relationship (i.e., product for money). They must also create value, beyond the product itself, to cater to the largest retail segment. Through trial and error, market players figure out how to create and deliver the housing outcomes low-income homebuilders want at a price that is affordable to them. That is the “value” we are looking for. We hypothesize that market players can accomplish this by focusing on minimizing and mitigating risks for incremental homebuilders.

This idea ties back to our previous blog on the centrality of the concept of risk management. When low-income consumers understand that they must shoulder the burden of most, if not all, risk in the home construction process, they will default to the strategies that have served well elsewhere: word-of-mouth referrals, direct experience, and community social capital. Under such circumstances, these consumers may choose high quality housing products, services, and advice more by accident than design.

Author:

Sheldon Yoder, with contributions from Yoselin Huaman, Gema Stratico, Masua Mutua, Al Francis Razon, and Monica Rashkin.