Affordable, Sustainable Housing Product Seeks Business Model

Published: Monday, June 11th, 2018 by Alejandra Ramos

Richard Northcote, Chief Sustainability Officer of German chemicals company Covestro, one of the speakers at the Asia Pacific Housing Forum in Hong Kong, is done with describing Covestro’s business as “green” and “ecofriendly.” To Northcote, “People Planet and Profit” and inclusive business drives Covestro’s product development for growing housing ecosystems in Asia, as well as Germany. This means bringing together resources, technology, people and a mission. Still, at first glance, one would have to ask how and why a polymer company became involved in affordable and disaster-relief housing.

Product discovery. After years of successful projects in rural Asian agriculture, Covestro discovered potential low-cost housing solutions in India. Two key chemicals in their product line, polycarbonate glass (the outside case of many mobile phones) and polyurethane (think: insulation), can be fabricated into extremely energy efficient wall panels.

"House of Nations" exterior and interior

The “House of Nations” in Begisch Gladbach, Germany. Source: Covestro

Partnering with French housing construction company, Logelis, Covestro develop this new product with a mind toward affordable, sustainable housing. The first pilot project in Covestro’s home country of Germany was completed in Bergisch Gladbach. Dubbed the “House of Nations,” the mixed-use building was built by Covestro and Logelis, in conjunction with city officials. The quick construction time (four weeks) and highly-efficient design has set a precedent in Germany, which is still looking for solutions to house refugees and asylum-seekers. Furthermore, at a cost of 1,150 per square meter, Covestro’s housing materials have proven to significantly reduce costs as well as energy consumption.

Through Northcote’s inclusive business activities, Covestro struck a relationship with Habitat for Humanity eight years ago to build houses in the Philippines. Since then, the organization has coordinated and contributed product to housing projects in India, Indonesia, and Malaysia.

Covestro's affordable housing initiatives in Jaipur, India and Malaysia

Covestro’s affordable housing initiatives in Jaipur, India and Malaysia. Source: Covestro

Even so, the proof of concept is still looking for business success.

Exploring inclusive business models. At the forefront of Covestro’s involvement into affordable housing is Northcote’s desire to engage partners, especially at the local level, and to eventually involve local labor and possible occupants of the housing itself to dedicate sweat equity, such as with Echale a Tu Casa’s product in Mexico. Projects with NGOs and governments are at the core of Covestro’s inclusive business projects.

Northcote acknowledges these challenging public-private-people partnerships can mean longer project development cycles. He insists that successful partnerships come from the fact that over time, “we have learned to build partnerships and to test a range of business models. We can work to see why business models aren’t working. We can bring together the public sector, civil society and the private sector.” He believes the added benefits of local workforce development and new sources of income generation would help mitigate product shipping costs. It also gives Covestro a new way to tap into local markets and amplify the potential for community economic development.

Scaling Up. As Covestro continues its housing venture, the question has become how exactly to replicate Covestro’s housing partnerships at a larger scale. Covestro is good at producing commodities at scale. Northcote believes strongly that Covestro should be able to leverage existing corporate assets and technological resources to sell affordable housing product.

However, tapping into international affordable development housing markets has proven difficult for a stand-alone chemical-products company. Northcote admits it is “difficult to develop effective inclusive business models. We have to get away from expectations of normal commodity pricing and volume. To get into this niche, we need to understand the needs of the market, especially individual homeowners. We need to partner with existing market participants.”

Northcote suggests that these markets need a coordinating entity to source materials on site, handle production and maintain the relationship with local governments and communities. Local partners could range from housing manufacturers and developers, to possibly larger homebuilders with a similar mission in mind.

In addition, Northcote is working on an internal operating model for Covestro in this sector, one that clearly defines their limits of operation. For example, can this product be used in any climate setting? Would Covestro direct their projects at city centers or peri-urban areas? Siting affordable housing in appropriate places is one of the critical questions in housing sustainability. To be a “sustainable” housing producer, the social impacts of where these housing products are placed would also be considered.

Housing innovation moving forward. According to Northcote, true housing innovation can only take place when individuals with a passion and dedication to change their operating models work together to alter the system. Covestro can supply wall panels, but a house requires multiple parts and multiple players to achieve the common goal of delivering a home.

Having the right support from governmental authorities will also be a major driver in determining the success of low-cost housing products and programs. Municipalities with clear housing plans are crucial to coordinating private companies delivering housing products within their regions.

Covestro’s role in the affordable housing market is yet to be determined, but it certainly appears to have cracked a major component in low-cost housing solution needs. It is Northcote’s vision of “People Planet Profits,” awareness of the global housing shortage, and ability to mass produce that could propel Covestro into housing innovation.

In lowering construction costs and delivery quality products, Covestro fills a particular piece of the affordable housing puzzle but is searching for the remaining pieces to complete it.