Investment in affordable housing

In recent years, housing prices have been on the rise. This is evident from the latest IMF Global Housing Watch data, which shows that despite the Covid-19 pandemic, global housing prices continued with their rising trend.

Increasing house prices have resulted in households dedicating a large share of their income to housing costs. Low-income and vulnerable households have long faced this issue, and middle-income classes are also facing affordability issues.

Housing affordability is defined as the ability of households to buy or rent adequate housing, without impairing their ability to meet living costs.

Although no international consensus exists on how best to measure housing affordability, certain indicators such as the house price-to-income ratio and housing expenditure-to-income ratio are often used to provide an association of housing prices (or spending) relative to income levels.

Given rising house prices globally, what has been the situation in Pakistan, specifically with regard to affordable housing?

The case of Pakistan

Pakistan’s population explosion coupled with rapid urbanisation has left a large proportion of the population without decent, stable and affordable housing. Moreover, this problem is projected to exacerbate in the coming years with forecasts of increase in urban growth.

Homeownership in Pakistan is highly concentrated, remaining in the top-income bracket, leaving a limited supply of housing for low-income people.

Other key factors contributing towards housing being highly skewed to a certain section of the population are highly variable building costs (due to construction material and technology) and land prices.

Mortgage markets remain shallow and mortgage finance is expensive, which also acts as an impediment to affordable housing.

An IGC report titled “A Framework for Affordable Housing in Pakistan”, published in 2019, states that greenfield developments (a real estate construction project on previously undeveloped land) are not an affordable option for the average Pakistani household.

Infill developments with high density multi-storied apartments in existing cities may be the only affordable housing option for the urban population.

Making housing affordable

Governments employ a wide range of measures for making housing affordable. Housing support measures such as housing allowances and social housing targeting low-income and other vulnerable households can prove to be effective.

In this regard, the Naya Pakistan Housing Scheme is a welcome step for the provision of affordable housing to the population. However, it remains to be seen how effective the policy is implemented and whether it lives up to the claims of providing 5 million housing units to the low-income households of the country.

Concomitant with an increase in housing stock is also the need in developing countries including Pakistan to commit to digitisation of land record for secure property rights, and development of mortgage finance for better access to credit for housing development.

Globally, countries have also focused on other measures targeting prospective or existing homeowners such as the provision of subsidies and tax relief.

According to an OECD report on affordable housing, these measures are more likely to target median-income households and do not always reach those in the greatest need.

To conclude, as governments around the world undertake efforts to fight the economic impact of the Covid-19 pandemic, manifested in recessionary conditions, rising unemployment and resulting poverty and deepening inequality, investments from both the public and private sectors in affordable housing can lead the way for an inclusive economic recovery.

The writer is a doctoral candidate at the Bartlett, UCL

Published in The Express Tribune, November 22^nd, 2021.

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