The global affordable housing gap is estimated to swell to 1.6 billion people by 2025, largely driven by rapid urbanization, according to the McKinsey Global Institute forecast. Markets where this rapid urban expansion is happening face weak regulatory environments, inadequate supply of affordable units, and a dearth in financing options.
A recent World Bank report states that out of an annual demand of 250,000 housing units in Kenya, developers can only put up 50,000 units. More worrying is that 49,000 of these target the upper-middle and high-end segments of the market, leaving the low-income group undersupplied, with only 1,000 units to share.
“Startups have proven to be quite successful in cracking open challenging problems in sectors like health care, agriculture, and clean energy.”— Jane Otima, associate director of market systems and entrepreneurship, Habitat for Humanity’s Terwilliger Center for Innovation in Shelter
We can advocate for substantial government programs to fill the affordable housing gap or large-scale charitable foundation programs to provide shelter solutions, but with demand in the millions, it is hard to match growing housing needs of the populations.
Research and practice show that market-based solutions have the potential to address mounting challenges of affordable housing demand. When it comes to housing in general and affordable housing in particular, recent efforts from government in many countries around the world have served as a welcome push for new programs and projects in the area.
However, we believe that public sector initiatives alone are not sufficient to drive systemic sectoral changes required to meet the growing housing deficit. To achieve scale and close the existing housing gap, we need to catalyze markets by providing affordable finance options for low-income market segments and promote innovation and development of affordable construction technologies and materials.
Startups and scale-ups in housing
Startups have proven to be quite successful in cracking open challenging problems in sectors like health care, agriculture, and clean energy. By developing and testing new products and services along with new business models, entrepreneurs often have the flexibility to look at an old problem in a new and creative way to efficiently scale solutions.
Uber and Airbnb, for example, were started by entrepreneurs who looked at existing problems differently.
Housing problems could also be solved if we harness innovative thinking, new technologies, and provide an environment to nurture and develop talent. This was the impetus behind Habitat for Humanity’s Terwilliger Center for Innovation in Shelter when it launched its ShelterTech Accelerator programs a few years ago, first in Mexico and later in Kenya and India.
The program aims to support housing markets to better meet the needs of the low-income market segments by identifying and nurturing innovations that significantly increase access to decent and affordable housing. It was critical to scout and support innovations and ideas that were either market-ready or had potential to significantly disrupt the affordable housing market.
Accelerators for startups, also known as seed accelerators, are fixed-term programs that accept a cohort of companies and offer them connections, mentorship, and training. They culminate in a public pitch event to seed investors to achieve growth.
ShelterTech Accelerator program
In Kenya, the first ShelterTech Accelerator program ran from August 2018 culminating in a demo day at the end of May 2019. More than 90 Kenyan startups and growth-stage companies submitted initial applications. Of these, 30 were selected to undergo an intensive six-month business mentoring and coaching that helped to redefine their business models and set priorities and road maps for business growth. Only 15 of these companies made it into the final round to pitch their ideas to investors.
Five startups — A-Homes, Gjenge, ManPro, Mycotile, and The VLage — and two scale-ups — Corec and MaliJKodi — working to provide affordable housing solutions were selected to proceed to investment negotiations with various investors. Each of these companies stands a chance to raise up to $50,000 in investment. Investors interested in supporting the selected businesses include Habitat’s Terwilliger Center for Innovation in Shelter, Pangea Accelerator, through its Oslo Investor Program, and local investment companies represented by Viktoria Ventures.
The program in Kenya was implemented by BDO East Africa in collaboration with Pangea Accelerator and hosted by @ibizAfrica. This initiative is supported through the IKEA Foundation and Hilti Foundation.
Accelerators have become an efficient and structured mechanism of evaluating a larger number of ventures versus what would be possible in an individual deal-by-deal engagement. They also help build a stronger entrepreneurial ecosystem, especially for sectors that are still nascent, such as affordable housing.
Building a smarter world
Ultimately, Habitat's Terwilliger Center for Innovation in Shelter aims to see shelter sustainably anchored in the entrepreneurship ecosystem both regional and globally. Up until now, the ecosystem has mostly consisted of sectors other than shelter including fin-tech, ag-tech, and health-tech.
ShelterTech is new and nascent in the ecosystem and much effort and initiatives are still required to firmly anchor it as a viable option in the entrepreneurship ecosystem to attract investors.
Accelerators do have the potential to leverage startups in emerging markets to spur up early-stage investment and growth.
One lesson we have learned from our experience with ShelterTech Accelerators is that accelerator programs are not only about funding. Although seed funding is important, more important is the right match to the right companies and ensuring that the product companies are offering match real needs of the low-end markets.
Secondly, training and mentoring can be even more important for startups than seed funding. The ability to hire the right people, develop a proper product, and create a marketing plan is equally important as securing funding. However, entrepreneurs tend to focus on capital and overlook critical talent issue. Accelerator programs can help address these issues.
We believe that harnessing the entrepreneurship ecosystem to invest in shelter will bring up more innovative shelter ideas to the market. With the real estate and construction sectors contributing to 14% of the gross domestic product in Kenya, potential economic growth could be exponential, and this could set an example of addressing the affordable housing need globally.