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Imagining a Social Enterprise Model for the Provision of Pro-poor Housing Solutions in the Philippines

By David Hoffmann, on 7 December 2016

In November 2013, super typhoon Yolanda hit the Philippines in full swing. Fragile shelter structures across the archipelago’s coastal areas did not withstand the strong winds and storm surges brought about by Yolanda. In the aftermath of the disaster, the government launched an emergency programme with the mission to ‘build back better’ [1]. The government was supported by the international humanitarian community, whose swift response matched the scale of the disaster in its scope and ambition. Yet serious funding challenges were said to hamper recovery.

 

Budget shortfalls are one of the most pervasive barriers to the successful implementation of recovery programs and a constant challenge faced by traditional development models. The idea that social enterprises could offer an answer to this issue has gained traction in the past years [2]. Social enterprises are organisations set up as revenue-generating business with social objectives, which allows them to be financially independent. As part of DPUs Junior Professional Programme, I was lucky to work closely with one of them.

 

Founded in 2014, LinkBuild is a young Housing Development Enterprise (HDE) whose mission is to scale up innovative, low-cost, and sustainable shelter solutions and programs for and with the poor. LinkBuild was set up as the latest addition of the Philippine Alliance, a grouping of 5 organisations that has a long history of successfully mobilising communities around savings groups in order to achieve secured land tenure. Given the current housing context in the Philippines, the need for this kind of program has never been more urgent.

 

The Housing Context in the Philippines

 

A new day begins in Quezon City, one of Metropolitan Manila’s 16 cities. The streets have been buzzing since the early morning hours, the traffic slowly pulsating through their aching junctions. As I work my way through the streets, I walk past busy informal settlements. Some are squatter settlements, the result of spontaneous and unplanned occupation of land. Others are informal subdivisions. The residents here live on a surveyed plot and they usually have proof of ownership or land-lease rights.

 

Flooded downtown Manila during rain season.

Flooded downtown Manila during rain season.

 

In Metro Manila, one out of every four people resides in informal settlements, often within disaster-prone areas. As an alternative, several shelter programs are being implemented by government and non-government actors. Yet the delivery of these programmes has been unable to cope with the rocketing demand for affordable housing. Driven by natural population growth and rural to urban migration, the main urban areas in in the Philippines are growing at a breath-taking pace. The country is projected to be 80% urbanised by 2025 [2] – an increase of 30 points from 2015. Moreover, officials are talking of a housing backlog of 5.7 million houses of which 60% are believed to be economic and social housing [3].

 

Most worryingly, some of the latest government’s efforts to deliver shelter programs have been proven to be counterproductive. A recent operation plan that aimed to relocate over 104,000 informal settler families out of danger zones in Metropolitan Manila, relocated 67 per cent to off-city sites [4]. The programme beneficiaries call these off-city sites the ‘death zones’. They feel effectively disconnected from their earlier life as they struggle to deal with the loss of their livelihoods and networks. Reports show that up to 60% of individuals that were relocated out of Metro Manila eventually return to the city [5]. If given the option, many ISF would rather remain in the old site despite the immediate risks they face instead of moving outside of the city.

 

Informal subdivision in Valenzuela City, Metro Manila.

Informal subdivision in Valenzuela City, Metro Manila.

 

At the same time, the private sector has recognised affordable housing as a potential growth market, yet it is struggling to set foot in the sector. From a purely financial perspective, affordable housing provision is a cut-throat affair. In Metro Manila, developing affordable housing amounts to ‘financial suicide’, as a local housing developer recently put it. The high land prices, as well as the additional costs of building in a congested city mean that selling houses for less than 7.500£, the maximum unit price at which they are considered to be affordable, can only be achieved at a loss. Even the supply of houses within the ‘economic housing’ brackets, at a unit cost of no more than 19.000£, is a hard trick to pull off.

 

The fundamental problem with these government and private programmes is that they treat informal settlers as an issue that needs to be dealt with, or an opportunity that ought to be exploited. What they fail to see is that informal settlers can be actors in the housing delivery process.

 

Imagining a Social Enterprise Model for the Provision of Pro-Poor Housing

 

As a social enterprise, LinkBuild is set as a revenue-generating business with social objectives. This distinguishes it from traditional NGOs that rely on international aid and funding to run their programmes and operations. Historically, the Philippine Alliance members have operated as traditional NGO’s. However, the donor landscape is shifting as it tries to make its beneficiaries’ programmes more investor-friendly. As a result, donors increasingly treat capital disbursements to partners as an investment, which has important implications for organisations like LinkBuild. This new trend is pushing LinkBuild to imagine a business model that sits comfortably within the highly competitive real-estate sector while staying true to its vision of reaching and mobilising the marginalised communities.

These units were built on an in-city relocation site identified by the local government. It also facilitated negotiations with the landowner and landfilled 6.5 hectares of land. Seventeen (17) of these plots were allotted to one of the communities associated to the Philippine Alliance

The units pictured above were built on an in-city relocation site identified by the local government.  Local government also facilitated negotiations with the landowner and landfilled 6.5 hectares of land.

 

To achieve financial sustainability, LinkBuild’s latest wave of housing projects is being conceived as mixed-income developments. The idea is to make a part of the 670 units fit for middle-income clients. The units, which will be more spacious, will be sold at a price surplus, effectively subsidising the construction of the more affordable units. While this new approach seems like radical change in direction, it does have a compelling argument in its favour. It offers a possibility for the organisation to become financially independent over time.

 

In the short run, LinkBuild’s operations would still heavily rely on the access to a starting capital. LinkBuild has therefore partnered with Real Equity For All (ReAll – former Homeless International), one of the few investors who are venturing into the housing market at the bottom of the pyramid. The capital enables LinkBuild to cover the costs of ‘hard investments’ such as purchasing and developing land, as well as the construction of the housing units; and thus, LinkBuild cannot be thought of as a stand-alone organisation, at least not for the time being.  However, in the medium run LinkBuild is hoping to achieve financial sustainability sustaining through the profit generated by the sales of surplus houses.

 

Chart 1: LinkBuild’s Social Enterprise Model

Chart 1: LinkBuild’s Social Enterprise Model

Strong Communities Make a Difference

In line with the tradition of community-oriented organisations like the Community Architects Network and the Asian Coalition of Housing Rights, LinkBuild works closely with the communities that it seeks to reach. The Philippine Alliance is the main enabler of this process. Each organisation in the Alliance plays a strategic role in delivering LinkBuild’s housing projects, as their active networks and expertise allows them to mobilise and engage communities through participatory processes. For example, through the Homeless People Federation Philippines, Linkbuild is able to link with strong communities (see Chart 1) in different regions. After connecting with the communities,  LinkBuild conducts market research and hosts workshops with clients and communities to ensure that it is able to reach target clients; that it meets their specific needs; and that the project is financially viable. In the end, the gathered information directly feeds into the architects’ final project design.

Chart 2: What defines a Strong Community?

Chart 2: What defines a Strong Community?

Moreover, the close ties of the Philippine Alliance with the local government units help to navigate the hurdles that land acquisition and development may pose. For example, in Mandate City, local government identified land and facilitated the negotiations for acquisition. Given the competitive nature of the sector, this form of support is crucial.  Least but not last, LinkBuild also follows international best practice of developing in-city projects. By purchasing land that is centrally located, the organisation hopes to deliver projects that actively contribute to the integration of marginalised communities to the existing city fabric.

 

Participants of the Bago Gallera Site Planning Workshop in Davao City last September.

Participants of the Bago Gallera Site Planning Workshop in Davao City last September.

All of the above factors allow LinkBuild to distinguish itself from the traditional housing developers that tend to have a top-down approach to housing delivery and are primarily concerned with meeting sales objectives.

Ultimately Linkbuild’s model still remains to be tested since the mixed-income housing projects are yet to be completed. As the organisation enters unexplored waters with the Philippine Alliance, it will continue to learn by doing. And there remains a lot to be learnt. Given the housing sector’s state of permanent emergency, planning for the future of the countries’ urban poor is crucial. Despite the scale of the problem, there are only few organisations bold enough to offer an alternative. As it paves its way to sustainability, LinkBuild might well be leading the path towards the ‘imaginative reformulation of the systems by which we manage change’ [7]. And it is leading the change by asking the right question – how do we build forward better?

 

References

 

[1] National Economic and Development Authority, 2013. Reconstruction Assistance on Yolanda:  Implementation for Results. [online] Available at: http://yolanda.neda.gov.ph/wp-content/uploads/2015/11/RAY-2.pdf

[2] Overseas Development Institute, 2013. Why and how are donors supporting social enterprises? [online]. Available at: https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8894.pdf

[3] The World Bank, 2016. Closing the Gap in Affordable Housing in the Philippines: Policy Paper for the National Summit on Housing and Urban Development. [online] Available at: http://documents.worldbank.org/curated/en/547171468059364837/pdf/AUS13470-WP-PUBLIC-Housing-Summit-Policy-Paper-has-been-approved-P155561.pdf
[4] Lorenciana, C.R. (2013). Philippine housing backlog is 5.5M SHDA targets to build a million units by 2016. [online]. Available at: http://www.philstar.com/cebu-business/2015/07/13/1476445/philippine-housing-backlog-5.5m-shda-targets-build-million-units

[5] The World Bank, 2016. Closing the Gap in Affordable Housing in the Philippines: Policy Paper for the National Summit on Housing and Urban Development. [online] Available at: http://documents.worldbank.org/curated/en/547171468059364837/pdf/AUS13470-WP-PUBLIC-Housing-Summit-Policy-Paper-has-been-approved-P155561.pdf

[6] Housing and Urban Development Coordinating Council. 2014. Developing a National Informal Settlements Upgrading Strategy for the Philippines (Final Report). [online]. Available at: http://www.hudcc.net/sites/default/files/styles/large/public/document/NISUS%20Final%20Report_July2014.pdf

[7] Sumsook, B. 2016.  Cities for People and by People. [online]. Available at: https://unchronicle.un.org/article/cities-people-and-people

 


 

David Hoffmann is an alumna of the MSc Urban Economic Development and a participant of the DPU/ACHR/CAN Young Professionals Programme. He currently works at LinkBuild, where he is involved with the design and implementation of organisational development strategies. Amongst others he organised workshops to encourage the knowledge exchange between community associations in Cebu and Davao.

 

*All pictures taken by D.H.

 

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