The Next 4 Billion — The Housing Market
Hammond, William J. Kramer, Rob Katz, Julia Tran, Courtland
Housing is one of the larger base of the pyramid (BOP)
markets—larger than transportation, smaller than energy. The
market encompasses major spending items—rent, mortgage payments
(or imputed rents), and repairs and other services. But the BOP
housing market is perhaps uniquely handicapped by informality.
Both lack of legal title to housing in squatter
settlements—Hernando De Soto’s “dead capital”—and lack of access
to mortgage financing for the BOP limit its potential size.
Despite these barriers, both private sector approaches and
policy reforms—sometimes catalyzed by NGOs—are showing how to
tap this market in ways that provide significant benefits for
BOP households. In Asia especially, where mortgage markets are
undeveloped and land prices high relative to income, the market
potential—and the need—is huge (Bestani and Klein 2006).
How large is the market?
The measured BOP market for housing in Africa (12 countries),
Asia (9), Eastern Europe (6), and Latin America and the
Caribbean (9) is $187.5 billion. This represents recorded annual
household spending on housing in the 36 low- and middle-income
countries for which standardized data exist, covering 2.1
billion of the world’s BOP population. The total BOP housing
market in these four regions, including 3.96 billion people in
all surveyed countries, is estimated to be $331.8 billion.
Because imputed rent is a major part of household spending on
housing and cannot be determined precisely, these numbers should
be regarded as setting a lower bound for such spending.
Asia has the
largest measured regional BOP market for housing, $86.6 billion,
reflecting a significant BOP population of 1.49 billion. The
total BOP housing market in Asia (including the Middle East) is
estimated to be $171.4 billion, representing the spending of 2.9
billion people. Latin America has the next largest measured
market, $47.4 billion (276 million people), and an estimated
total market of $56.7 billion (360 million people).
In Eastern Europe the measured BOP housing market is $34.2
billion (148 million people), and the estimated total market
$60.8 billion (254 million people). In Africa the measured BOP
market is $19.3 billion (258 million people), and the estimated
total BOP market is $42.9 billion (486 million people).
The average BOP share of measured national housing markets
varies across regions. In Asia and Africa that share is 63%. In
other regions it is much smaller: 39% in Latin America, 35% in
Eastern Europe. Latin America has the greatest disparity between
the BOP share of the population (71%) and the average BOP share
of housing spending (39%).
The BOP share of housing spending also varies across
countries. These differences in part reflect the prevalence of a
landed middle class in some developing countries, such as South
Africa and throughout Latin America. Between mid-market
landowners and disenfranchised BOP communities, the BOP share of
a country’s housing market is on average half that of its weight
in population. Nonetheless, in countries such as Pakistan and
Sierra Leone, the BOP accounts for more than 95% of the measured
In Asia one extreme is represented by Sri Lanka, Pakistan,
and Bangladesh, where the BOP accounts for more than 90% of the
spending on housing—the other by Thailand and India, where
despite the substantial BOP population, the recorded BOP share
is only 47% and 48%, respectively. In Africa the extremes are
Nigeria (99% BOP) and South Africa (31%). In Eastern Europe the
extremes are represented by Uzbekistan (92%) and FYR Macedonia
How is the market segmented?
Many African BOP markets for housing are relatively bottom
heavy, with spending concentrated in the bottom three of the six
BOP income segments. The remainder are flat, with spending
distributed relatively evenly across all BOP income segments. In
Asia too, most BOP housing markets are either bottom heavy or
In Eastern Europe, in contrast, almost all countries have a
top-heavy BOP market, with the top three segments accounting for
more than half of BOP housing spending. The lone exception is
Uzbekistan, where the bottom three BOP income segments account
for 77% of spending. In Latin America spending tends to flatten
out at the BOP1500 segment. In Brazil, for example, the top
four segments each account for 19–23% of BOP housing spending.
In Latin America and the Caribbean some large national
housing markets are dominated by the wealthier mid-market
segment; in Colombia the BOP accounts for only 27% of the total.
In Peru, however, the BOP segment accounts for nearly
three-quarters of the total market (73%). Jamaica represents
the extreme, with 88% of the national housing market in the BOP.
In contrast, the BOP dominates Asian markets, with only
Thailand and India having slightly more than half of total
housing spending in the mid market. Africa too is predominantly
a BOP market: in only one country, South Africa, does spending
in the mid-market segment exceed that in the BOP.
What do households spend?
BOP spending on housing reflects consistently strong demand:
people are willing to spend a fairly constant share of their
income on their home.
India has the
largest measured BOP housing market in Asia, $62.1 billion; BOP
spending accounts for 48% of the national housing market and
averages $164 per household a year. In other regions the BOP
market leaders are Mexico ($45.6 billion, 44% of the total
market), with average annual spending of $1,280 per BOP
household; Russia ($94.7 billion, 34% of the total market), with
average spending of $1,268; and South Africa ($14.4 billion, 31%
of the total market), with average spending of $652.
These expenditures by BOP households may not be large. But in
Mexico they are large enough to fuel two significant and growing
corporate efforts to tap BOP housing markets.
Where is the market?
In 24 of the 36 measured countries, BOP housing markets are
predominately urban. However, it is often difficult for national
surveys to accurately measure housing expenditure in poor rural
areas—often rents must be imputed.
In Asian and African countries, housing markets are often
predominantly rural. The Ugandan BOP housing market, for
example, is 71% rural. Most Asian BOP housing markets also are
predominantly rural. In Sri Lanka, for example, 77% of the BOP
housing market is rural. Rural housing markets can be
substantial—$9 billion in Thailand, for example. An exception
to the pattern of rural dominance is Pakistan, where urban
squatter settlements account for much of the imputed BOP rent
and the BOP housing market is only 36% rural.
In Eastern Europe, where countries were so heavily urbanized
under Soviet rule, much of the housing is in cities. In Russia
just 19% of the BOP market is rural. Only two countries have BOP
markets in which at least a quarter of the spending takes place
in rural areas—FYR Macedonia (31%) and Belarus (25%).
In many Latin American countries reported spending on housing
also occurs mostly in urban areas. In Colombia, for example,
urban spending is 92% of the total for BOP housing. In
Guatemala, however, the BOP housing market is 52% rural and 48%
Large urban BOP communities represent huge untapped market
opportunities. Mexico’s urban BOP housing market is nearly $16
billion annually. Brazil and Colombia each report urban BOP
housing spending of more than $8 billion a year.
Is there evidence of a BOP
Household surveys seek to capture all sources of income, but
they do not measure the “dead capital” trapped in the informal
economy. For many BOP households, their dwelling and the land it
sits on is their primary capital. When they lack formal title to
that asset, or when they must contend with ineffective land
markets or barriers to transferring title, housing becomes dead
capital. Under these circumstances BOP households face a
significant BOP penalty—one that artificially curbs their
potential purchasing power and often their access to services.
The problem extends to the multitude of enterprises in the
informal economy. These businesses, operating outside the formal
legal system, cannot easily leverage their assets into working
capital. The dead capital trapped in houses and businesses
together is enormous: a recent study showed that informal
properties and businesses in just 12 Latin American countries
are worth as much as US$1.2 trillion (ILD 2006; IDB 2006).
Worldwide, the figure is estimated to be at least US$9.3
trillion, and is probably much larger (De Soto 2004).
Informal home ownership also poses a barrier to service
delivery. Many governments require proof of title before a
household can receive social benefits. And municipalities often
are unwilling to connect undocumented homes to water, sewer, and
electricity networks, since they have no legal recourse to
collect un-paid fees from a home that—in the eyes of the
government—does not exist.
Economist Hernando De Soto (2003) has suggested that one way
out of this informality trap is to make extralegal ownership
more formal—for example, by offering home owners official title
to their home. A different strategy, in Pakistan, has focused on
providing lowcost mortgages that enable low-income families to
buy new homes with secure titles.
is a member of
Ashoka’s Leadership Group and Full Economic Citizenship
initiative. Recently he was Vice President for Innovation and
Special Projects at the World Resources Institute. William J.
Kramer is founder and president of The Global Challenge
Network, and previously was Director of Education and Training
for the Markets & Enterprise Program at the World Resources
Institute. Rob Katz is a Knowledge & Communications
Associate with Acumen Fund, and previously he was an Associate
with the Markets and Enterprise Program of the World Resources
Institute. Julia Tran was a Research Analyst with the
Development Through Enterprise project of the World Resources
Institute. Courtland Walker was a Research Assistant with
the Development Through Enterprise project of the World
Reprinted with permission from the World Resources Institute.
The Next 4 Billion: Market Size and Business Strategy at the
Base of the Pyramid. Washington, DC: World Resources
Institute and International Finance Corporation, 2007.
household expenditures in a given country should be regarded as
a minimum estimate of actual expenditures, because surveys may
not have collected information on all types of housing-related
spending. Moreover, many surveys do not account for the
expenditure value of an owner-occupied dwelling; these surveys
are standardized using a rent imputation to estimate the amount
of money owners would spend if they were renting the house they
2. Many surveys
in Latin American countries suffer from measurement and
imputation problems in rural areas, which may lead to
underrecording of the rural housing market.
3. Institute for
Liberty and Democracy, “Mapping Dead Capital..” Inter-American
Development Bank, http://www.iadb.org/bop/mapping_capital.cfm
(accessed January 12, 2007).
“Construye tu futuro hoy,” http://www.cemexmexico.com/se/se_ph_pf.html
(accessed March 1, 2007), and “Patrimonio Hoy Developing and
Launching a Market Transforming Innovation to Low-Income,
Developing World Markets,” http://www.vision.com/clients/client_stories/cemex_pat.html
(accessed March 1, 2007).
5. Institute for
Liberty and Democracy, “Documented Impact of ILD’s Reforms,”
http://www.ild.org.pe/eng/facts.htm and http://www.ild.org.pe/pdf/annex/Annex_01.pdf
(accessed January 30, 2007).
and Johanna Klein. 2006. “Housing Finance in Asia.” Asian
Development Bank, Manila.
Hernando. 2003. The Mystery of Capital: Why Capitalism Triumphs
in the West and Fails Everywhere Else. New York: Basic Books.
— — . 2004.
2004-05 Frank Porter Graham Lecture, University of North
Carolina, Chapel Hill, October 26.
(accessed January 16, 2007).
(Inter-American Development Bank). 2006. Building Opportunity
for the Majority. Washington, DC:IDB.
for Liberty and Democracy). 2006. “Evaluación preliminary de law
economía extralegal en 12 países de Latinoamérica y el Caribe.”
Lima, Peru. Also available at http://www.iadb.org/NEWS/articledetail.cfm?artid=3123&language=En.