Scaling a proven model for affordable low-carbon housing

Safe and secure housing is a key determinant of health and a person’s ability to earn a livelihood.  Yet, according to the World Bank, an estimated 1.6 billion people, worldwide, live in substandard housing.  Without a more inclusive and scalable approach to housing development, the global housing crisis is projected to reach 3 billion people by 2030 (1).  This could have devastating social, economic, environmental, and political consequences for the world.

In Africa, where our solution is currently focused, there is an estimated 50-million-unit housing deficit (2).  According to the World Bank (3), Africa faces a major housing crisis due to rapid urbanization and a growing slum population.  The IFC (4) reports that “African cities become the new home to over 40,000 Africans every day, many of whom find themselves without a roof over their heads”.   A World Bank Report (3) shows that housing markets in many African countries fail to meet the needs of most Africans, including the rapidly growing middle class.  The Report states that “In many African countries, only the upper 5 to 10 percent of the population can afford the cheapest form of formal housing . . . as a result, 90 percent of Africans live in informal housing, where living conditions are often substandard, unsafe and without basic services like water, electricity and sanitation.”  The report projects that Africa could have as many as 1.2 billion urban dwellers by 2050 and 4.5 million new residents in informal settlements each year, most of whom cannot afford basic formal housing.

According to UN-Habitat (5), limited affordable housing options force most Africans to make their homes outside the formal housing market, typically in slums and informal settlements where housing is affordable but “rarely healthy, comfortable, dignified places to live”.  Factors driving housing prices beyond reach of most Africans include the cost of construction materials and lack of a “robust construction sector” (3).  Authorities on housing market dynamics in Africa (2) say that in addition to addressing land tenure and housing finance constraints, sustainable solutions to housing in Africa must focus on increasing the supply of affordable housing options for low and middle-income families, and that “this requires lowering constructions costs through local production of building materials and increasing the availability of skilled labor”.   Echale International addresses both these critical contributing factors to Africa’s housing shortage, at scale.

References

1) UN-Habitat, website, 2023

2) Bah et.al, Housing Market Dynamics in Africa, African Development Bank, 2018

3) World Bank, Stocktaking of the Housing Sector in Sub-Saharan Africa, 2015

4) IFC, Rapid urbanization is pushing up demand for housing in Sub-Saharan Africa, 2023. 

5) UN-Habitat, Affordable Land and Housing in Africa, 2011

Echale is a market-based housing development enterprise that has built and sold more than 50,000 durable, desirable, and sustainable, single-family homes to low-income people in Mexico for more than 2 decades now. Echale delivers houses that our target audience can and want to buy, by combining four key elements that drive quality and efficiency:  1) Proprietary architectural designs and blueprints, construction standards and procedures, and project management and quality assurance tools and technology; 2) patent protected Ecoblock machine for producing durable, low cost, and environmentally sustainable building materials locally; 3) Method for tailoring house designs to customer requirements; and 4) a franchising system for scaling.  

We transfer these elements to local developers (i.e. franchise owners) and provide ongoing training and support that enables them to succeed.  Through franchising, we build more and better builders of inclusive and sustainable homes and thus continually expand the supply of home ownership opportunities available to Africa’s rapidly growing middle class.

Echale houses are targeted to underserved working class (middle and low-middle income people) who can afford to finance a house at the price point Echale needs to charge to be self-sustaining.  In Mexico, government subsidies enable Echale to also serve low-income customers.  

In Uganda, where we are in the process of expanding, our franchise owner is currently targeting underserved middle and lower middle-class workers (e.g., professional school teachers) earning $250-$300 per month, who are stuck in a cycle of paying more the half of their earnings to rent a substandard and overcrowded apartment in Kampala; and who cannot afford the average $40K price of a house that meets their requirements (1).  Echale offers an opportunity to own a durable and environmentally sustainable single-family home that meets their requirements (e.g., size and location) at $20K, that can be financed at 30% of household income, less than what they currently pay for rent. Over time, our franchise owner in Uganda will seek to develop a partnership with the government to help reduce the cost of the house (e.g., through donation of land and/or to provide subsidies to lower income customers who would like to become an Echale homeowner).

1) CAHF, Africa Housing Finance Yearbook, 2020

Through franchising, we leverage local entrepreneurs to adapt Echale homes to the needs of customers in their own communities.  Not only do they understand their communities better than we ever could, but the franchise ownership structure incentivizes our local implementers to ensure product/market fit.  Franchisees only succeed when their products (i.e. houses) sell.  Likewise, the franchisor (i.e. Echale International) only succeeds when franchisees succeed.  We are therefore incentivized to provide franchisees with training, tools, and support that they require to achieve their goals.  One of the ways we support franchisees in adapting house designs to the local market is through our proprietary human-centered design methodology that provides a structured way to engage customers in designing their homes and communities.  This program has proved to be a valuable way to build strong communities in Mexico and we expect it will also be valuable to franchisees in other countries.  

In Mexico, Echale serves more than 250K people through home ownership, 1.25M through home improvements, and another 450K through job creation.

We are very excited about the prospect of leveraging the Solve network to analyze, capture, and share what we learn about challenges and solutions to scaling a housing development enterprise globally via franchising.  Our hope is that the Solve community will provide a broad range of perspectives and expertise needed to accurately assess strengths and overcome challenges to scaling Echale to new countries.  

We anticipate working with partners across a range of fields, particularly in developing mortgage financing products and integrating new technologies into our community development programs (e.g, clean energy, sanitation, and water systems).  Our ultimate goal is to close the housing gap and we believe that being part of a collaborative network of innovators in housing will help us get there faster.

The most significant innovation in our solution is our use of franchising to scale globally.  Our work has the potential to transform housing markets directly by increasing the quantity and quality of local builders that address currently underserved market segments at an increasing rate over time; and indirectly by providing an organized network of professional local developers through which to test and distribute new building technologies (ours and other organization’s innovations); and by advancing the field’s understanding of how to use a franchise structure to scale more vastly and quickly.

Direct Impact

Over the next five years, Echale International projects expanding into three new countries on the African continent, directly impacting  5,888 lives through homeownership.  Through our use of franchising, Echale International will have created 13 new inclusive and sustainable housing developers, each capable of building 150+ new single family homes per year, and collectively employing 145 people in the formal housing sector.   All 158 of these new entrants into the formal housing industry will have been up-skilled to deliver high quality housing, regardless of whether they continue to work for Echale.  In this way we contribute to solving a need for a more robust construction sector armed with capabilities that increases the supply of affordable housing in Africa.

Through use of the Ecoblock machine, Echale will contribute to solving a need for lower cost, locally produced, building materials that drive down housing prices.  Additionally, Ecoblocks provide a lower-carbon alternative to concrete and will result in a reduction of 180,800 kgCo2/m2 carbon emissions in the next 5 years.

Indirect Impact

Our approach to housing development ensures that Echale homeowners have access to basic infrastructure requirements, including water, sanitation, energy, and roads.  We achieve this through our land acquisition selection process and/or through land improvement partnerships (e.g., government, private enterprise).   As a result, we anticipate that our housing developments will impact livelihoods in several ways including better health outcomes for Echale community members.  

According to the World Bank (1), “housing construction and ownership not only benefit families, but also create jobs for masons, carpenters, electricians and other trades . . . and  for every house built, five jobs are created”.  Considering the infrastructure work required to prepare land for Echale communities, we anticipate that in addition to the 158 permanent jobs created through Echale franchise owners, we will create 6,400 temporary jobs during the construction of the 1,280 homes in five years.    

Ongoing impact

Finally, through our sustainable and scalable business model,  our impact will continue to grow exponentially over time and contribute to building a better functioning housing sector capable of attracting private investment that further accelerates deployment of housing solutions throughout the continent.  As stated by Jonas Parby, a World Bank Urban Specialist (1), “Apart from the immediate and obvious benefits of adequate housing, a well-functioning housing sector leads to economic growth that can improve livelihoods, create jobs and expand the market for goods and services”.

1) World Bank, Stocktaking of the Housing Sector in Sub-Saharan Africa, 2015

We measure success in terms of impact and financial performance.  From an impact perspective we count the number of houses we have built and sold and from there, calculate how that translates into social, economic, and environmental impact.  We measure our direct social impact by calculating the average household size for a country by the number of houses built in that country to arrive at the number of people housed.  We measure economic impact by a) the number of new business owners created through franchising (e.g., franchisees) and b) the number of jobs that those franchisees create in their communities (e.g., construction jobs).  We measure environmental impact by using findings from scientific studies that compressed earth blocks result in 35% reduction of carbon compared with concrete. 

Echale International’s theory of change is grounded in 1) academic research; 2) data from Echale’s 25 years of experience in Mexico; and 3) data from decades of commercial success using the franchise model to replicate business outputs and outcomes through independent owners internationally.   

Long-term Outcomes

Our anticipated long term outcomes for Echale International include: 

• New generation of African housing developers with opportunity, ability, and motivation deliver high quality, sustainable, homes to underserved markets;

• Increased generational wealth for Echale home-owners;

• Better health, education, and economic outcomes for Echale homeowners;

• Partnerships that expand Echale housing to low-income people;

• Reduction in housing gap;

• Reduction in carbon emissions;

Our outcome assumptions are based on research linking decent housing built from sustainable materials to improved health and well-being of people and the planet. 

Short-term Outcomes

We anticipate that long-term outcomes will result from achieving the following short-term outcomes:

• Increased number of people who own and live in safe, durable, and environmentally sustainable homes that improve their living standards.

• Increased wealth for local franchise owners that incentivizes compliance with Echale standards and creates demand for franchise ownership throughout the continent. 

• Increased opportunities for jobs in formal housing sector

Outputs

We anticipate that short-term outcomes will result from achieving two key outputs:

• Production of increasing numbers of durable and sustainable homes that are affordable and desirable to underserved segments of the population.

• Offtake of homes sufficient to drive profitability of franchisees and Echale International (the franchisor).

The challenges to producing affordable housing that is durable and desirable in Mexico are similar to those in several countries throughout the African continent (e.g., cost of materials and skilled labor).  Echale’s methods have successfully addressed these challenges in Mexico and our theory of change assumes that they will also work in African countries.  For example, in Mexico, Echale’s materials, designs, and construction methods have enabled them to produce houses at a cost that enables them to reach underserved markets while also earning a 10% margin on the sale of each house.  House desirability and affordability is evident by the more than 50,000 people currently living in an Echale home in Mexico.   Echale’s qualitative data show a high degree of customer satisfaction with Echale homes and after 25 years, demand for Echale houses continues to increase.  

Inputs

We anticipate that the following inputs delivered by Echale International to franchisees will yield our desired outputs: 

• Sourcing qualified franchise owners;

• Granting selected franchise owners the rights to use Echale’s IP (know-how, designs, and tools), Ecoblock machine, and brand;

• Training in how to use the know-how and tools;

• Help with adapting know-how and tools to local circumstances;

• Ongoing support;

• Assistance with financing;

• Ongoing research and development that maintains market relevancy;

Echale International will apply the principles of franchising to enable and incentivize entrepreneurs in African countries to produce and sell a growing number of houses that meet Echale standards to underserved populations in their communities.  

Echale’s success is driven by a combination of technologies.  At our core is Echale’s patented Ecoblock machine that improves on an ancient building material, earth blocks.  The machine compresses the earth blocks to make them as strong as concrete blocks, without the cost or negative environmental impact of concrete.   The Ecoblock machine enables Echale franchisees to manufacture their own building materials, using soil from the construction site.  This gives them more control over costs and availability of materials.  

Another core technology is our evidence-based system for building homes and communities using Ecoblocks.  This know-how is derived from 25 years of experience and is what enables us to keep costs low and quality high.  Our know-how is codified in a range of proprietary tools, including technology platforms, that enables franchise owners to replicate our success.  

Franchisees are granted the rights to use our know-how, tools, and machine to produce houses in exchange for a percentage of their revenue.  This relationship benefits franchise owners by increasing the speed at which they can go to market with a housing solution, and the likelihood that it will succeed.  They are spared the resource-intensive process of building a business from the ground up.  Echale International benefits from more effective and efficient adaptation and scale that is driven by local ownership.

Echale International is on a mission to accelerate the development of more inclusive and sustainable housing markets worldwide.  We focus relentlessly on quality and rely on teamwork and collaboration to help achieve this goal. Along the way, we are continuing to build a culture that is safe, respectful, fair and inclusive for all of our employees.

As we work to achieve our mission we affirm our commitment to Diversity, Equity, and Inclusion (DEI). We are proud to employ people of all backgrounds who possess the talent, energy, and focus to accelerate our vision forward. Each employee is encouraged to bring their whole self to work, knowing that Echale International values individuality as much as we value collaboration.

Through its franchisees, Echale International provides value by creating home ownership opportunities for people who are not currently served by the market.  For example, in Uganda, our target audience will be able to transition from their current rent trap to investing in their own home that builds generational wealth and gives them more long-term stability.  By offering a house that meets the requirements of our target audience (e.g., size, location, design) at half the price of the currently available houses on the market, we expand the addressable market from 210,000 households to 710,000 households.  Over ten years, we aim to capture 1.4% of the expanded market (10,000 houses), a $200M value.  Echale franchisees will also develop partnerships with banks to provide affordable financing.  For example, our franchise owner in Uganda is developing a partnership with the Housing Finance Bank of Uganda to offer affordable financing to Echale customers.

Echale International provides value to its franchisees by offering a proven product and business model that taps into a substantial and growing market opportunity.  Essentially, we make it easier for local entrepreneurs to be successful housing developers, and for local developers to expand their market offering.

Echale International will sustain operations through franchise royalty payments, established as a percentage of home sales.  Additional sources of revenue include franchise licensing fees and interest from leasing Ecoblock machines.  The business model is designed to be profitable to franchisees after royalty payments, but, to reduce cash flow burden on franchisees in their early growth stages, we offer deferred payment plans for royalties and the Ecoblock machine.  With the deferred payment plan in place, Echale International will require a $2M investment to achieve 10-year growth projections of 48 franchisees delivering 20,000 houses in 3 countries.  In this scenario, Echale International is projected to break even by year 5, generate $1M in annual earnings by year 8, and $3M in annual earnings by year 10.  At year 10, we project a 3.25x return on the $2M investment.  The business will be able to self-fund growth without additional external capital.

Echale Mexico has achieved financial sustainability through revenue generated from home sales.  Echale helps customers gain access to housing finance and government subsidies to serve lower income communities.  Cost savings from government donations of land are also passed to the customer through lower house prices.  Echale also has a foundation that accepts grants to subsidize house prices for the poor. Once we gain traction among middle class buyers in new markets, we will establish similar partnerships and programs that enable us to expand our offerings to lower income market segments without compromising financial sustainability of the business.