Red Sea Affordable Housing Case Study

The venture philanthropy initiative serves the large global demand for affordable housing.

The Red Sea Affordable Housing Division was established as a venture philanthropy initiative to serve the large global demand for affordable housing. The attractiveness of this segment is in its double bottom line effect, which results from the profit targets and the sustainable social and economic impact.

Saudi Arabia is facing an affordable housing crisis. Already, over 60% of Saudis do not own their own home and, with a booming population, the pressure is set to grow.1 By 2020, the Kingdom is expected to have a housing shortfall of 2.4 million units.2

It is not alone. By 2025, 1.6 billion people around the world – one third of urban humanity – will be in crowded, inadequate or unsafe housing, or struggling to make housing payments, , according to forecasts from the McKinsey Global Institute.3 By the same year, 2.4 million extra homes will be needed annually to satisfy affordable housing demand in the world’s 20 largest cities.4

Saudi venture philanthropy initiative Red Sea Affordable Housing (RSAH) has been set up with this in mind. Still in its early days, the organisation is based on the premise that building affordable housing is a chance both to make money and satisfy a profound social need. As well as the domestic market, the company is looking further afield: its core regions form a significant chunk of the global affordable housing gap, sized at about US$650 billion.5

RSAH is not acting alone, however. Aware that making a dent in the housing figures will need developers to be more productive, innovative and collaborative than ever before, the company is looking to harness global experience and technological knowhow. It has joined forces with Brazilian contractor Direcional Engenharia,6 a major player in Brazil’s flagship social housing programme, which offers lessons to other countries – and companies – seeking to make headway in this sector. 

Minha Casa, Minha Vida (My House, My Life) was launched in 2009 to tackle Brazil’s shortage of 5.4 million homes by offering subsidised mortgages to families with incomes below R$5,000 (US$1,600) a month.7 By stimulating private sector development, it aims to ease a situation in which millions of Brazilians live in favelas – 11.4 million at the time of the 2010 Census – and millions more are squeezed into sub-standard formal accommodation.8

The programme has been criticised for inefficiency9 and patchy construction, as well as placing developments in isolated areas away from public services and infrastructure,10 something Brazil’s government has sought to address with tightened standards.11 But its overall figures are striking: 10.5 million low-income people placed in 2.6 million housing units across the country by 2016.12 Companies too are churning out strong numbers: in 2014, Direcional Engenharia delivered an average of 1,540 homes per month,13 and achieved a turnover of US$575 million.14

Now RSAH hopes its partner’s background and technology will complement its own experience in modular construction, allowing the pair to deliver for the double bottom line – profits for developers and affordable, sustainable communities for those who need them.

References

1 Red Sea Housing Services Company. “Board of Directors Annual Report to Shareholders 2015”. http://www.redseahousing.com/portals/0/annual%20reports/red%20sea%20annual%20report%20-%20english%20-%202015_lowres.pdf.

2 Red Sea Housing. “Red Sea Affordable Housing Division”. http://www.redseahousing.com/our-divisions/affordable-housing.

3 Woetzel, J., Ram, S., Mischke, J., Garemo, N., Sankhe, S. (2014) “Tackling the world’s affordable housing challenge”. McKinsey, October. http://www.mckinsey.com/global-themes/urbanization/tackling-the-worlds-affordable-housing-challenge.

4 Ibid.

5 Red Sea Housing Services Company. “Board of Directors Annual Report to Shareholders 2015”. http://www.redseahousing.com/portals/0/annual%20reports/red%20sea%20annual%20report%20-%20english%20-%202015_lowres.pdf.

6 Ibid.

7 See http://www.worldpolicy.org/blog/2016/07/07/brazil-my-house-my-life

8 Camboriú, B. (2013) “If you build it: A scheme to promote working-class home ownership is off to a good start”. The Economist, 16 February. http://www.economist.com/news/americas/21571893-scheme-promote-working-class-home-ownership-good-start-if-you-build-it.

9 See http://www.reuters.com/article/us-brazil-politics-landrights-idUSKCN0ZA03C

10 Healy, M. (2014) “Minha Casa Minha Vida: An Overview of New Public Housing in Rio”. Rio on Watch, 5 June. http://www.rioonwatch.org/?p=14887.

11 Camboriú, B. (2013) “If you build it: A scheme to promote working-class home ownership is off to a good start”. The Economist, 16 February. http://www.economist.com/news/americas/21571893-scheme-promote-working-class-home-ownership-good-start-if-you-build-it.

12 Pacheco, P. (2016) “Brazil: My House, My Life”. World Policy, 7 July. http://www.worldpolicy.org/blog/2016/07/07/brazil-my-house-my-life.

13 Red Sea Housing Services. (2015) “Red Sea Housing Forges Strategic Alliance With Brazilian Developer”. PR Newswire, 10 March. http://www.prnewswire.com/news-releases/red-sea-housing-forges-strategic-alliance-with-brazilian-developer-295769901.html.

14 Fahy, M. (2015) “Red Sea Housing agrees JV with Brazilian developer”. Construction Week Online, 2 March. http://www.constructionweekonline.com/article-32775-red-sea-housing-agrees-jv-with-brazilian-developer/.