Housing units: untapped and unmet

Increasing urban area housing backlog highlights shortage

ISLAMABAD: In 1971, one of Pakistan’s prolific economists of the time, Dr Anwar Iqbad Qureshi, said with regards to housing in urban areas, “The housing backlog in urban areas has increased progressively, from a shortage of 600,000 dwelling units in 1960 to 1 million units by 1970.”

This meant that each year, there was a shortfall of around 50,000 housing units. In 2014, former House Building Finance Corporation (HBFC) chief Zaigham Rizwi estimated that the backlog is around 8 to 9 million, in which the urban portion is 3 to 3.5 million units; almost all of which is in the segment of low-income households. The annual backlog is at least 300,000 households.

The supply and demand situation in the housing market is highly skewed, indicating there is huge “cash on the table”. According to estimates by a private low income housing expert, Jawad Aslam, 68% of Pakistan’s population has only 1% of total housing stocks, whereas 56% of housing stock is meant for 12% of the upper income segments. There appears to be an untapped market and unmet demand for housing units in the urban areas particularly for the low- and lower-middle income segments.

From Bhutto in the 1970s to Nawaz Sharif in 2013, every government has invested in supply of low-cost housing units for masses earning low income. The government established a specialist housing finance company, the HBFC, for facilitation in housing mortgage. The State Bank of Pakistan keeps reminding the commercial banks to extend housing mortgage.

All these steps have failed to alter the fundamental shifts in housing supply and demand. The private sector seems convinced of building more houses for those whose marginal utility is already on a decline, and has not done anything for those who are ready to sacrifice their current consumption. The mortgage-to-GDP ratio remains at less than 1%.

Provisions for low-income segments

As far as provisions for low-income segments, the Housing Policy 2001 looks good on paper. However, it is not for the first time that such policy measures have been announced. An analysis by Muhammad Ali Tirmizi suggests that all these policies have failed to serve their purpose precisely because the “procedures adopted for their implementation are incompatible with the sociology and economics of lower income groups.”

The current government has already announced its own plans to provide and finance 500,000 houses for the low-income segments. In the 2014-15 budget, the government allocated Rs6 billion to be spent on low income houses through a newly formed company, Apna Ghar Limited. There is no evidence yet of any tangible progress by this company. There are corresponding schemes in the provincial governments – with housing being a provincial subject – and Punjab’s Ashyana scheme seems doing well.

In addition, the government also earmarked Rs20 billion in the budget as guarantee for housing loans to be issued for low-income segments. The guarantee scheme is quite ambitious when we consider a very low off take of such loans due to hesitation of banks. Indeed, the outstanding housing credit constitutes hardly 1% of total outstanding loans of commercial banks in the country. However, it is hoped that the current budgetary initiative will, at least partially, compensate for low off take of financing facilities as it will provide banks with a hedge against defaults.

The current policy environment is marked by horizontal expansion, rigid zoning laws, restrictions on building heights and high mortgage costs. These have resulted in costs of real estate which are as high as major capitals of the world, and a dilapidated infrastructure which is one of the worst. For urban development in general, and for low income housing segment in particular, these present major policy challenges need to be overcome by reforms.

The market will respond positively to these reforms, the onus lies on the government. More than just provisioning houses, a task in which a government is more likely to fail, it will do very well by just doing the policy right and let the market manage the problem.

The writer is an Executive Director of PRIME Institute, an independent think tank based in Islamabad

Published in The Express Tribune, January 12^th,  2015.

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