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Affordable housing

Pakistan has been experiencing rapid population growth together with rising levels of urbanization for a long time. The rising importance of urban areas is impacting not only population but also on the economic growth. In the process of urbanization, the issue of housing of population and shortages were evident as early as in late 1990s, primarily attributed to the lack of construction technologies and methods that lead to advancement of supply. Housing shortage in Pakistan was existing throughout the period after independence, there has been a gradual shift in the housing problem in urban areas from the shortage of housing availability to the lack of housing affordability. Land cost and its availability, apart from availability and access to finance, has been becoming important determinant of house prices in major cities of Pakistan. By implication, the housing has become out of the reach of several millions due to the high rise of house prices in comparison to their incomes.

Pakistan’s Prime Minister, Imran Khan, has promised to provide five million new affordable houses to the people in his 5 years term. And now affordable housing has become a buzzword in Pakistan. As per State Bank of Pakistan’s report, according to the 2017 census, Pakistan’s population has reached 208 million, growing at an average of 2.4 percent annually since 1998. The growing number of households implies an increase in the demand for housing. It is estimated that annual demand for new homes is approximately 700,000 a year, whereas, only about half of this demand is met. Overall, the housing deficit is estimated at 10 million units and growing.

Over the past decade, the combined share of housing and construction in the country’s GDP has been consistently higher than 9 percent. General housing finance is moving at a snail’s pace. In the first quarter FY2018-19, outstanding housing finance increased merely to Rs89.79 billion from Rs89.18 billion over the same period last year. To address the issue, the government has announced tax incentives for financing of low-cost housing. The second mini-budget has proposed a cut in taxes from 35 percent to 20 percent on bank loans extended for low-cost housing. Similarly, the State Bank had earlier announced a subsidized financing facility under which banks will be provided Rs 1 million or 50 percent of the loan amount at an interest rate of 1 percent while the end borrowers will be charged at 5 percent. These efforts will be supplemented by the Pakistan Mortgage Refinancing Company supported by a World Bank loan of US$ 58 million. The company’s lending rate to banks will be 2 percentage points less than for 3-year Pakistan Investment Bond for low cost housing, and 50 basis points lower for general housing.

Major population of Pakistan is below lower income group. Low cost housing projects for affordable living are major concern for the government and providing low cost housing projects to people is one of the biggest election promise of this government. Pakistani government is soon starting an affordable housing scheme as a pilot project collaborating with public and private partnership. As a matter of fact, construction of low cost housing by using the low cost building materials increases the access to buildings by low income group people. Low cost housing can be achieved by the use of efficient planning and project management, locally available materials, economical construction technologies and use of alternate construction methods available. The profit gained from the use of such methods can decrease the cost of construction and make the low-cost housing accessible to all.

The main constraint to obtain affordable houses can be regarded as financial, social and institution framework. Financial factors tackle middle class economy, high cost of infrastructures, low level investments, difficulties in accessing financial resources and escalating cost of building materials. All these factors make it tough for poor and middle class to afford house. The challenges do not only include financial factors but also social factors such as population explosion, rapid-rural to urban migration and high poverty levels. Key challenges in the provision of affordable housing in Pakistan are as follows:

Land: In urban areas mostly in central Punjab, land has been highly valued and is mostly in hands of the local authorities or local influential individuals. The other landowners are speculators who look to make a quick cash. This has made land inaccessible to the more people including poor and middle class who need it most but cannot afford premium price.

Infrastructure: The opening of new land for housing development requires installation and maintenance of infrastructures like water, road, electricity and security. These infrastructure facilities provide crucial component of shelter provision. Indeed, accessibility to sufficient urban basic services will crucially improve people’s economic capacities, heath and quality of life in general.


Financial resources for housing: The financial bottle neck is a major limitation factor in housing development in Pakistan. The sources of funds are few and the funds are on high price. Banks prefer to fund government backed securities and infra projects. Getting qualified for mortgages would be a new concept in Pakistan and Pakistan’s banking sector is not fully prepared to lend huge funds for such schemes. Inappropriate fiscal policies on real estate financing, inability to finance house loans to groups, low affordability due to poverty, high interest rates on mortgages, and lack of access to the large deposits of state owned enterprises have hindered and can continue hindering the development of the housing sector in Pakistan.

Public-private partnership in housing delivery: The common objective of public-private partnership in housing delivery can be to boost the productivity of the housing sector, increasing housing affordability and improve access to basic infrastructure. Housing must be considered as a significant economic sector with vital linkages to the overall economy of a country.

Investment in affordable housing supports multiple social objectives: Investment in affordable housing can support multiple social objectives. This includes improvements to individual outcomes such as employability, crime, health and wellbeing and community cohesion.

The wide set of government’s desirable socio-economic outcomes cannot be achieved through housing benefit or other operating expenditure on affordable housing alone. Therefore public investment in affordable housing is vital. As a result of investing in affordable housing, it will generate more opportunities for everyone. For instance, more unemployed people can get job opportunities and tenants could benefit from good quality homes, affordable home would be less at risk of suffering from hygienic diseases and therefore, could save household expenditure that would be spent on those diseases.

Housing developments are extremely capital intensive and highly leveraged. Yet it can be difficult to secure debt, especially at reasonable rates, which are a key component of bringing down the cost for the end-user. Land is expensive in central Punjab that it alone can make affordable housing unviable. Additionally, banks in Pakistan are reluctant to finance the purchase of land. Therefore creative methods often need to be used to secure land in a way that makes sense for the project. The loan interest rate with margin of over 14 percent in Pakistan are too high to afford for those people with low income. For the purpose of designing an affordable housing program, affordability can be approached in two ways: by household income categories, and by housing cost categories. Thus Government of Pakistan needs to decide and define the key household and housing unit categories to support; options include: a) Support affordability up to the lower to middle class households; b) Support only the low-income segment, c) Some instruments to support the lower income and some for the middle income, categories; d) Support specific low-income employment categories like teachers, police, healthcare staff, or low-paid civil servants in addition to some general income based schemes. Rapid inflation has caused large increases in the cost of materials and land. On average, developers see their costs increase by 30 percent in the last 6 months of 2018. It is difficult to maintain a healthy margin with this level of inflation, especially if a large portion of the units were sold off plan at a price that failed to predict the inflation.

When it comes to the health and vitality of the communities, affordable housing is the key. The need for quality, affordable homes is an important part of sustainable development goals of Pakistan. The poor management of the growth of housing cost in Pakistan has been affecting negatively in terms of finance. Therefore, reducing the effect of housing issues could be a potential benefit to both low and middle income households. In summary, the main challenge to obtain affordable housing in Pakistan is high interest rate and big gap between house prices and level of household income. To balance this, the government of Pakistan has to intervene with special fund dedicated to affordable houses that can act as both a subsidy; making the project more financially viable and as a guarantee, allowing a credit constrained housing association to borrow against this amount.

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