Imagine a low-cost housing association. Let’s imagine it’s founded by a guy named Elon O’Leary – he’s experienced in tech innovation and low-cost businesses. He saw an opportunity in the Irish market’s inability to meet the increasing need for affordable housing.
At the time, Irish society had allowed itself to believe that this was a uniquely Irish problem – despite the reality that the real cause, the financialization of housing, was behind a wave of crises in the sector that swept the world.
It reminds him of how a similar opportunity arose in the airline industry in the early 1990s, when his low-cost carrier began offering fares half those of incumbent competitors.
The common wisdom of the airline industry was that flying was glamorous, expensive and only affordable for a few. It suited the incumbent operators to perpetuate this myth of expensive air travel.
These original low fares were achieved through a single-minded pursuit of affordability. This involved examining and questioning every single aspect of the deal to eliminate all excess costs. An early awareness of the reputational threat of equating “cutting costs” with “cutting corners” also led them to insist on setting a record as the safest, most modern fleet in the world.
Imagine Elon’s delight as he turned his attention to the Irish housing sector and found it abounded with cost-cutting opportunities. Elon wanted to know the price of every nail and handle that goes into a house.
His goal was to bring homes and financing packages to the market at a price that would never exceed four times the annual disposable household income – and at an incredibly low price of €200,000 per unit. Elon liked the word “impossible”.
“You want an affordable home? I build to your budget. Let me tell you what you can and can’t afford,” he insisted.
A new starter house was handed over in the finished shell. Inside was a completely empty interior space with only the modular core of an energy and water supply system, a bathroom and a kitchenette. Fitted kitchens, chic bathrooms, built-in closets, decorative fireplaces, balustrades, carpets and wallpaper were left for the new homeowner to add gradually over the years as funds permitted.
The homes were delivered with full planning permission to expand the property by a further third over the next 10 years – allowing people to grow into their homes.
In the early days, Elon had to contend with many critics who claimed he only sold “cheap rabbit hutches”. The suggestion that Ireland allowed itself the luxury of one of the highest room rates per person soon stopped this line of attack.
The original purchase price came with a financing package. This resulted in lower-cost financing at highly competitive rates that outperformed traditional financial institutions — in the same way it was able to help lower airfares in its early days by bypassing the slow, uncompetitive major airports.
The powerful Irish construction industry originally lobbied heavily to contain him as an existential threat to their wasteful and inefficient but lucrative practices. He responded, just as he did with airplanes, by entering into volume and value contracts with key material suppliers to reduce costs, which he then passed on to his customers.
The Eastern European window and door maker didn’t agree to a 50 percent reduction in list prices, but swallowed the pill because it was part of an agreement to supply Elon with €25 million worth of goods every year, guaranteed for each of the next 5 years. When you produce 10,000 units a year, buying in bulk makes all the difference.
It was the same with all the other parts of the house – they were all bought with huge discounts made possible by bulk buying.
A similar pattern emerged in the management of the labor required to build the houses. Very large components were quickly assembled in off-site factories – complete walls, ceilings and floors with all cables, switches and sockets already in place, tested and certified. Factory-made homes were faster and cheaper because they were freed from the tyranny of rainy-weather delays.
Elon appreciated the comment of an early satisfied customer: “Once you’ve experienced a factory-made home, you’ll never be satisfied with a one-off site-built one.”
His company slogan was, “We build houses at the lowest cost and highest quality – faster than anyone else.”
Elon was no fool either. He understood that houses are also apartments and that they play a huge role in people’s identity. His houses may have been cheap, but they never looked cheap.
As a young accountant, he was amazed to learn from one of his mentors that talent is the cheapest thing on the market. His homes quickly became icons of high quality design because he squandered fees on this cheapest ingredient, while encouraging, publicizing and advising the best emerging designer talent. His designers seemed to relish the challenge of working with his ironclad and inexpensive “kit of parts” that had already been bought at huge discounts.
His boldest blow was the most counterintuitive – “What’s rare is wonderful,” he said, explaining why he never produced a development of more than 60 units and never came within 2km of another of his own plans. This also meant that he did not have to compete for large plots of land with the traditional large house builders.
Municipalities and housing associations quickly realized that they could not keep up with these prices – and also became enthusiastic customers.
To the annoyance of the anti-growth brigade, his affordable home business thrived and grew and is now Europe’s largest and most profitable housing provider – along with its airline.
Only Elon O’Leary fully grasped the fact that the only thing that trumps financialization is innovation, not nationalization.
https://www.independent.ie/opinion/comment/want-to-fix-affordable-homes-problem-we-need-an-elon-oleary-42051200.html Housing crisis: Do you want to solve the problem of affordable housing? We need an ‘Elon O’Leary’