Technology for upgrading slums and lowering the cost of housing by 30%

New technologies, including better land mapping, prefabricated construction and cheaper solar power, have begun bringing the costs of housing down 20 percent to 30 percent, say experts.

At the low end of the scale, the changes may be most significant: There is a new market developing to serve 200 million households in slums in emerging markets.

A third of urban dwellers—1.6 billion people—could struggle to secure decent housing by 2025. Here are four approaches that could help. If current trends in urbanization and income growth persist, by 2025 the number of urban households that live in substandard housing—or are so financially stretched by housing costs that they forego other essentials, such as healthcare—could grow to 440 million, from 330 million.

In Pune, India, where the population density is seven times higher than in Manhattan, at 194,000 people per square kilometer, developers are building apartments between 396 and 794 square feet that sell for RS 10-25 Lakh, or $10,000–$25,000. Spurred by the government’s push to make affordable housing a priority, a growing number of developers and private equity firms are entering the market, including Janaadhar Infrastructure and Poddar Developers. India has a shortage of 18 million urban housing units.

Technology will make housing cheaper and land use better.

65 million people a year are moving into cities.

The construction industry employs about 7 percent of the world’s working-age population and is one of the world economy’s largest sectors, with $10 trillion spent on construction-related goods and services every year. But the industry has an intractable productivity problem and, according to Reinventing construction: A route to higher productivity, a new McKinsey Global Institute report, an opportunity to boost value added by $1.6 trillion.

If construction-sector productivity were to catch up with that of the total economy—and it can—this would boost the sector’s value added by an estimated $1.6 trillion, adding about 2 percent to the global economy, or the equivalent of meeting about half of the world’s infrastructure need.

Parts of the industry could move toward a manufacturing-inspired mass-production system, in which the bulk of a construction project is built from prefabricated standardized components off-site in a factory. Adoption of this approach has been limited thus far, although it’s increasing. Examples of firms that are moving in this direction suggest that a productivity boost of five to ten times is possible.

Better Mapping makes more land available for development

In every city, there are significant parcels of land, sometimes owned by the government or a quasi-government agency, that aren’t available for development. Because so much of the price of housing is driven by the land, big-data mapping that combines geography with databases on land ownership and zoning to identify more land for development indirectly has been bringing down the price of housing.

For instance, an analysis of a sample of parcels in Riyadh, Saudi Arabia, found that 40 square kilometers zoned residential and have access to suitable infrastructure have remained idle for two decades, according to McKinsey.

In the least developed cities in the world, many in Africa, where much of the land isn’t mapped at all and ownership isn’t clear, mapping technology is laying the groundwork for change. If property is mapped, developers often pay slum dwellers for land they occupy, then borrow against the land to finance housing construction and sell or rent housing to the former slum dwellers.

Slum Dwellers international is using mapping technology to map settlements and give slum dwellers addresses.

New construction techniques

With land in greater demand in cities around the world, more developers and architects are designing tighter spaces with prefabricated materials that ultimately cost less and are the same or higher quality.

Computer modeling can more precisely estimate the strength and durability of different materials, like laminated timber and reinforced concrete, said London architect Simon Goode. That in turn is renewing interest in those materials, which may cost less to ship and takes less time to put together. A key to lowering costs is doing projects at scale: The incremental cost savings are small on an individual house but make a difference in sweeping affordable housing projects.

In the West Bank of Palestine, where land is at a premium, Goode developed plans for a community of houses selling for $40,000–$60,000 instead of the typical $120,000. The houses were smaller, with dual-use spaces like those common in Europe, and the houses made less use of expensive stone and used modular piece.

Solar for slums

Costs for solar photovoltaics are expected to drop by 25 percent by 2020. India is spend $150 million on lighting in the slums in Kolkata.

Lower cost solar is now seeing return on investment within 5 years.

Digital communication and internet infrastructure is becoming affordable and transformative as well.