Connect with us
Facebook Twitter Instagram

The Year Ahead: Going Beyond Corporate Social Responsibilities

Considering potential means for global corporate leaders to address affordable housing crisis in the new economy.

November 2019

By Fanyu Lin, Michael Gallagher, Fluxus LLC

Read World Economic Forum DAVOS 2020 Agenda: “Closing the housing gap: how industry can help – Affordable housing is an issue around the world and business leaders are being urged to take a holistic approach to tackling the issue.” by Fanyu Lin and Michael Gallagher.

Housing sector has far-reaching impact on our global economy at many levels, linking up-stream suppliers from primary and secondary economic sectors, down-stream product and service providers and operators, to the demand side of financing, and home rental/ownership throughout the housing value chain. Creating a vibrant and sustainable market to fill the multi-trillion dollar global affordable housing gap requires an eco-systematic paradigm shift. How can private sector corporate giants, from legacy industries making profits with old assets like petroleum to new tech companies making profits with new assets like data, contribute to this new paradigm, at profit and at scale?

In 2019, there are a handful of large corporations that have committed to solving regional affordable housing crisis through their Corporate Social Responsibility (CSR) programs, such as Microsoft that commits $500 million to Puget Sound region in January, and Apple that commits $2.5 billion to California region in November. While CSR and philanthropic efforts could make sizable impact, we believe there can be an alternative for corporations to be mobilized to voluntarily participate in the re-constructing of housing value chain at the same time enhancing their core businesses and values.

It is safe to say that businesses have tremendous influence on how buildings are deployed and used. Businesses influence where their employees live. They influence land use. They influence operations upstream, downstream and even side-stream from their locations. Taking a holistic community centered view, business communities might be more creative in leveraging their power to optimize performance beyond the structures within their fence-line. By taking this wider perspective, businesses have unique potential to create value and new synergies within the communities they serve.

Below are some concepts for global corporate leaders to address the challenges in affordable home delivery value chain, and make a positive impact on business performance, environmental footprint, community development, and worker quality of life.

Land and Planning

Major population centers where businesses are located face acute housing shortages, where the cost of land is prohibitive.  We have seen many well-constructed mass housing projects remain unoccupied or abandoned due to inconvenient locations away from employment, education, and basic services, or with very limited access to infrastructure and social support systems. Those affordable housing projects failed to fulfill their promise of improving the quality of life for the residents.

Corporations, by their community influence and purchasing power, could potentially not only acquire quality housing at an affordable price lowering the overall household cost for the employee, but also create housing at the right location as integral part of the business communities.

Public-Private Partnerships

  • Businesses may consider unlock land supply for effective home delivery through Public-private partnerships (PPPs). PPPs enabled partners from private sector to build housing on public land, coupled with incented development method to provide affordable units. By joining PPPs as a private partner, businesses can provide housing for its employee a profitable practice.

Campus Model

  • One can envision a model where businesses can catalyze for formation of clusters in close proximity to their sites, thus reducing commuting times, providing services and improving neighborhoods where personnel live. This model is well understood and accepted around the world to address skilled labor shortages it is similar to the university campus model where a local ecosystem is created for a common purpose. Consider the value a business could bring to its lower income employees. If for example, an urban area service provider could leverage its buying power to secure housing in and around their vicinity and provide options to its workers. That urban employee could have access to housing close to their employment. This ideally creates a small community cluster, with common needs, greater commitment to the business and a more stable environment among other benefits. This model is proven useful for employee retention.

Advocate for Public Policies

  • Corporations can advocate local and regional governments to improve housing standards and make investments in the areas where they do business. As individuals, household heads can do little to combat the issue of substandard housing. By aggressively leveraging a company’s economic power and politicalinfluence, local developers and government officials can be compelled to provide near proximity, better building stock at a reasonable price to your employees and employees of companies you do business with. Simply getting engaged to ensure your local tax dollars are spent wisely can make a significant difference.

Design and Construction

It is becoming increasingly evident that an industry approach is effective to deliver quality housing quickly at the affordable cost and at scale. Throughout history, there are many efforts sought to increase the efficiency and economic performance of housing developments without compromising living qualities. One of the answers was prefabrication. Today, technology has finally reached a tipping point where solutions like this, coupled with most recent innovations in intelligent manufacturing of industry 4.0, can scale to mass-market without the challenges faced historically.

Established large organizations in prefabrication space are presently labor intensive operations. Some investments in automation are being made, particularly by the large Japanese conglomerates, which are all profitable (20%-25% gross profit). Almost all are seeking to make strategic investments in other regions.

Japanese Conglomerates Model

  • Japan is amongst the most successful countries in delivering mass housing, and its advanced prefabrication industry plays a leading role. Notably, most major successful prefabrication companies in Japan are spin-off of corporations in other industries. For example, both Housing Company (SEKISUI HEIM/Two-U Home) and Sekisui House are set up by Sekisui Chemical Corporation, Panasonic Homes is by Panasonic, and Toyota Housing Corporation is originated from Toyota Motors Corporation.
  • As a proactive strategy to diversify business portfolio, companies operating in non-construction related industries may consider getting into housing sector by applying organizational forms and technologies, including production line, automation, procurement, logistic, design and management systems, which they had already applied successfully in their core businesses.

From Upstream to Downstream: The Sekisui Model

  • Sekisui Chemical Corporation, a raw material supplier for many industries including construction, set up and backed its housing business in the 1970s, which created new markets for its core products such as plastics and rubber.

From Downstream to Upstream: The Panasonic Model

  • Panasonic Homes becomes one of the biggest customer of its parent company’s core products and latest innovations including electronics, home appliances, smart home technologies, Artificial Intelligence energy management systems, heath care and advanced security systems, solar modules etc. In this way, Panasonic also uses housing as a testing ground for its new technologies. Recently, the company acts as both developer and supplier delivering the entire town and city with life-cycle services across almost the entire value chain. This eco-systematic development approach boosts both the sales of its housing company and other core businesses.

Advanced Manufacturing Technology Transfer: The Toyota Model

  • It is often discussed that we should build our homes the way we build cars. Toyota Motor certainly demonstrates the technological and business success in transferring its advanced manufacturing technologies from automotive industry to housing. The company first entered the housing business by adding home products in 1975, and gradually transferred many construction related functions into a group and then a separate company dedicated to housing. In 2010, the company transferred all housing business functions into its housing company, enabling vertical integration of development, production, and sales.

However, all the above companies currently serve the mid to top end of the housing market. To our knowledge, none of the large prefabrication company has set out to specifically address the unique needs of the affordable housing market. Most are at a prohibitive price point. There are companies participating in disaster relief and urban renewal efforts through philanthropy and CSR programs, certainly none have announced business strategies to build capacities and sales channels to serve on a much larger scale with a globally distributed, high-design and high-performance product offering to address the affordable housing market.

Financing and Home Rental/Ownership

Many multinational financial services corporations are committed directly or indirectly to sustainable community development through philanthropy and impact investment approaches. For example, Goldman Sachs’ Urban Investment Group has committed $7 billion to underserved American communities to support the fundamental building blocks of opportunity including affordable housing since 2001, and Mastercard’s Center for Inclusive Growth established as the company’s philanthropic arm, is committed to advancing sustainable and equitable economic growth and financial inclusion around the world. 

Beyond CSR programs, those companies can play a critical role in enabling lower-to-middle-income citizens to purchase homes through new products and business approaches.

Financial Inclusivity for the Unbanked through Digitization

  • While achieving shared prosperity for low-to-middle-income households, the financial corporations can gain market benefit of digitization, risk management and household transaction cost reduction. They can further capture value by expanding on their current model to generate revenues on transactions they facilitate, generating revenues by assessing the credit worthiness of customers on behalf of merchants, as well as facilitating market growth as revenue flow migrates from cash to electronic.

Housing as Part of Employee Compensation

  • Centered on the premise of “Empowerment” for the households to advance from being dependent to independent, there are approaches for corporations to contribute in helping their employees afford housing. With the digital economy, we believe there is an opportunity to revisit the traditional employment model. Large businesses face ever increasing challenges to improve agility and adaptability to take advantage of emerging opportunities.
  • Greater fluidity in the workforce will be needed to apply the right resources at the right time and place. Many successful organizations have long optimized the usage of variabilized resources to achieve needed flexibility. Taking performance to the next level, business leaders might consider applying similar concepts to the permanent workforce. With respect to housing, employers often absorb expensive relocation costs to move personnel to new geographies where their talents are needed. If however, the company were to provide housing for all employees as a part of their compensation package, greater mobility might be achieved with significant reduction in relocation costs.

Low-Entry-Cost Model

  • This is a concept to adapt the home ownership model to be more consistent with shared economy concepts. Businesses might consider an “Amazon Kindle” type model where up-front home ownership costs are reduced in exchange for providing access to certain household data and securing alternative revenue streams.
  • As we know, the scarcity of urban housing is increasing rapidly as cities evolve into megacities. Consequently, the lower income urban housing options reduce in number due to the capital required to purchase an urban household. Rental options are also diminishing. Corporations with increased buying power might construct new models where housing is provided at a much lower initial investment cost. Households, with their increased connectivity, can generate a longer-term revenue stream by providing data such as power consumption requirements, appliance performance and other services. Admittedly, privacy concerns and other issues arise but tradeoffs might be manageable.

Pay-for-Service Model

  • With the increasingly connected households, businesses might consider developing a “pay for service” market for high priced, energy consuming products such as HVAC systems and appliances. It is well documented that low income families tend to live in households with poor energy efficiency. Business models where they can avoid the initial high cost investment for energy efficient upgrades through usage fees that spread the cost over time might encourage them to retire old, poor performing appliances in favor of modern ones.

Rent-to-Own Model

  • When both property value and rents are on the rise, the renters cannot benefit from increases in value to the property they are living in. Large corporations may consider partnering or establishing their own impact finance funds to provide financing to renters to purchase the property from the landlord.
  • Adopting the emerging rental/ownership hybrid model can also be an effective way for companies to assist with their employees who are renters to gradually become owners.In this model, renters will be able to use a portion of rent to make equity investment into the property, therefore accumulate assets overtime. If the property is owned by the employer, the companies can in turn mitigate equity risk associated with ownership provided by this model.

Improving Living Quality in Communities

The above mentioned approaches are admittedly not appropriate for all organizations. However, all businesses can to some degree contribute to improving living quality in their communities.

Add housing and commuting challenges to your employee quality of life program objectives.

  • Most large corporations recognize that their employees are one of their most valuable assets. Attracting and keeping talented personnel is essential to remaining competitive and relevant in the markets they serve. In recent years, many progressive organizations have established programs to create a welcoming, inclusive and diverse work environment for their employees. A few examples are health and wellness programs, financial planning services, accommodations for working mothers, parental leave, flexible work schedules, volunteerism and many others.
  • Companies have learned it pays off to support the interests and needs of their employees both inside and outside the work environment. We believe there is untapped potential to improve worker productivity by moving even further past the boundaries of today’s employee programs. Looking forward, we submit that successful companies will need to undertake the challenge to consider the impact of global urbanization on employee households. Issues such as the availability and affordability of quality housing will increase in importance. Proximity to work and commute times is already a key factor in employment decisions in many regions of the world. Companies can take some proactive and pragmatic steps to address this emerging need.

Make your facility bike friendly.

  • Many urban areas are already adopting bike friendly policies. They serve to alleviate traffic congestion, reduce emissions and reduce inner-city commute times among other benefits. The key of course is to have affordable housing in reasonably close proximity to city centers and to have safe, secure routes to urban businesses. Businesses can use their influence to help expand this approach which is proving to be very popular with a large percentage of the workforce.

Hold public transportation authorities accountable to improve services to your employees.

  • According to U.S. Census data, average commute times have steadily increased. In 1980, the average one-way commute was 21.7 minutes. Today, it has risen to 26.9 minutes. More than 10 million people commute more than one hour each way to work. Some 600,000 commute more than 90 minutes each way.Unfortunately, public transportation performance is abysmally poor. The national average sits around 48 minutes each way for bus or light rail services. Businesses have access to valuable data and connectivity that can help inform public transportation officials how to structure routes and schedules. Businesses in close proximity to each other can coordinate activities to increase ridership. Long commutes have been found to be a drain on employee productivity and morale.
  • Public transportation can be part of the solution. However, we need to move beyond 1950’s era service provider models and take advantage of the capabilities of the digital economy. Some emerging smart digital solutions provided the means to create intelligent transportation systems and sustainable mobility strategies.

Support the innovation process for new ways to make housing more sustainable and affordable in your communities.

  • The low-to-middle-income housing market is in desperate need for innovation. With the digital economy, new business models are proliferating, replacing traditional ones. Low-to-middle-income households are presently and very large, growing underserved and underperforming market. This is especially true in terms of energy efficiency and carbon footprint. Buildings represent 40% of mankind’s carbon footprint. 90% of the world’s building stock was built before 1970 when there were limited or no energy efficiency standards. Using modern construction methods and materials, buildings today are 40% to 50% more energy efficient. One of the most impactful things we can do as a society is to bring all buildings up to current energy efficiency standards. We believe if large global businesses could innovate in this sector, they can bring much needed value to this sector and generate new revenue streams.
  • In the new economy, there are a few trends we should take into consideration for businesses to innovate for home delivery today:
  1. Less stable career paths.
  2. Greater need for mobility and flexibility.
  3. Growing acceptance of shared consumption.
  4. Blurred distinction between homes and offices.
  5. Virtual businesses proliferate with increased connectivity.
  6. Machine learning and autonomous decision making in place of white collar jobs.
  • Meeting those new demands will require innovation in the way homes are constructed. Adaptable buildings with customizable layouts may be required to enable higher occupancy turnover. Added connectivity also brings future privacy and security concerns for individuals, businesses and communities. In many ways, these issues center on the need to develop integrated new products and services that are inclusive and meet the needs of the entire community.
  • Business leaders, by their management experience and global networks, can be a great resource for small, innovative businesses focused on developing new housing solutions. Leaders might consider:
  1. Join small business boards and advisory committees.
  2. Support incubators and accelerators by providing access to their knowledge and networks.
  3. Use grant or impact investment fund to enable low-cost financing for pilot projects and communities.
  4. Help innovators generate business cases to create inclusive communities on a regional or local scale.
  5. Connect small business with a community of like-minded service providers who can help reduce up front capital investments for building and maintaining energy efficient projects.
  6. Help build an ecosystem and capacity for multi-stakeholder engagement, to facilitate innovations throughout the home delivery value chain.

About Fluxus LLC

Founded in 2013 in New York, Fluxus LLC is a construction/architecture technology company and impact enterprise, committed to providing affordable, energy-efficient and aesthetic smart home solutions for low-to-middle-income communities by leveraging innovations in smart city technologies, sustainable building materials, intelligent design, industrialization and digitalization of construction.

Back to NEWS & VIEWS