Slum finance: We can build a new asset class by housing the desperately poor

 
Larry English
THE LATEST forecasts for global population growth continue to surprise. The number of people on our planet is thought likely to reach 11bn, or even 12bn, by the end of the century. Africa’s population is set to quadruple to 4bn.

There are huge reasons for optimism, not least because world hunger has continued to fall even as its population booms. But without intervention, most of the new inhabitants of Africa and Asia will be forced to live in slums on the edge of hundreds of new mega-cities. It is in these slums, with high population density, limited access to clean water and poor living conditions, that we are watching the disturbing spread of Ebola that continues every week to claim scores of helpless victims.

Even now, more than 1bn people live in slum housing. Every day, 200,000 more people move to towns and cities to find work, most of them ending up in informal settlements without property rights, access to sanitation and clean water, or many of the amenities that we take for granted. By 2020, the world’s slum population is set to exceed 1.4bn, nearly one in five of the people on the planet.

At Reall, the UK’s only social enterprise focused on alleviating slum housing, we see this as an enormous investment opportunity. Charity alone will not tackle the problem of slums. It requires investors and social entrepreneurs capable of seeing that slums are the consumer markets of tomorrow, if we make the right investments.

From the evidence we have seen, in time, these investments are capable of making conventional returns. In other words, remarkable as it may seem, there is scope to build a new asset class. But how could it work?

It is important to recognise that those living in slums are not without income. They can afford modest interest repayments. With targeted support – financial, yes, but also technical and organisational – it is possible to create affordable housing at a cost of £3,500 per unit. In addition to expanding the housing stock, we could also give families a real stake – real equity – in their communities.

Britain already provides a model for how this can happen. Over the last century, housing associations have played a vital role in providing social housing to the less well off. Today, housing associations provide homes for 10 per cent of the UK population and regularly tap the City to finance the building and maintenance of their portfolios. In 2012, housing associations were able to raise £4bn by issuing bonds.

Reall, which emerged from the housing association sector 25 years ago, believes something similar is achievable in Africa and Asia. Yes, there are challenges. But where others see poverty, we see potential.

Reall works with 26 partner organisations in 20 countries, helping them build the capabilities they need to engage with local and national government, secure finance, and provide water, sanitation and housing facilities. Think of it as a franchise model: we maximise our impact by working through others, building organisations that build houses.

Slum housing is a big and complex problem, one that involves the institutional failure of local, regional and national governments. But private capital will have an important role to play in tackling one of the biggest issues facing the world today.

Larry English is chief executive of reall (www.reall.xyz), the UK social enterprise.