Low cost housing for a vast majority of the people poses an enormous challenge in terms of availability of affordable land and finances. The problem is rooted in socio-economic conditions and the solutions are handicapped by obstacles in the lending environment, made worse by speculative investments in real estate and lack of an ‘integrated, broader low-income housing finance strategy. HBFCL (House Building Finance Corporation Limited) is the largest player in the housing market in terms of the number of borrowers, accounting for 42 per cent of new borrowers but even their loan disbursement portfolio is around merely Rs600 million.
There are many challenges for low cost housing solutions. First, the archaic land and property records hinder large-scale urban residential development. Secondly, another issue that is indirectly linked to housing sector is the proximity of slums or kutchi abadis near urban real estate. Since it is easier to obtain residency in the slums, criminal minded people find it easier to commit street crimes and escape in the labyrinth of slums. Thirdly, even when affordable housing is built for the low-income households, speculators and others manipulate the markets for fast returns. The same units are resold at much higher prices, thus effectively reducing the affordable housing units. For example, Awami Villas launched by Bahria Town Rawalpindi. In order to deter speculators to enter the ‘resale’ market for low cost housing units, following suggestion is proposed:
- The government should make land available at highly subsidized rates to established builders, preferably from abroad, to build large-scale development mix. Smaller housing units of roughly 750 square feet should dominate the housing mix. The builders must be required to use a portion of land price savings (the difference between the commercial and subsidized land value) to establish a fund for the cooperative society that will manage the new housing development by taking out a second mortgage on the housing units for a larger value. If the affordable house is resold in the market, the cooperative society will recover the loan and the markup in proportion to the price appreciation. The cooperative society will then re-invest the profits in building additional housing on the unbuilt part of the developed land.
- Smaller unit sizes will ensure that high-income households do not find the units attractive to invest. Furthermore, the cooperatives could be empowered to ensure that households under a certain income threshold are eligible to purchase units in the development. Other restrictions to prevent multiple purchases by the same household could further prevent the speculators from generating undue profits. The mechanism will provide the means to sustain the supply of new affordable housing to replace the one that may become expensive in the resale market. The builders will make market returns on the commercial properties (office buildings, retail malls, recreation facilities, etc.) developed as part of the project.
- While the banks and builders are reluctant to grab the opportunity of housing finance, tech startups are quick to fill in the vacuum. In this connection, a Karachi-based startup, Modulus Tech has come up with a one-room, flat-packed housing unit that can be assembled in just three hours! The standard 256 square feet model costs around Rs300,000. Customized or bigger version will require more cost and time. The company is primarily targeting the affordable housing market: the internally displaced persons, refugees, and low-end housing projects for the poorest of the poor.
- In light of the above, even if the present government comes up with something concrete regarding five million housing projects during 1, 000 days, we may consider it a step in the right direction. Lack of political will is the only hurdle in the way of housing project for the poor.