Preamble
Pakistan currently faces a severe backlog of housing for the lower and middle class. Rough estimates put the figure at nine million units with 300,000 additional units being added each year. In light of the dismal state, this blog by the Iqbal Institute of Policy Studies (IIPS) will examine if the Naya Pakistan Housing Program is a viable solution to the problem of affordable housing. After mentioning the inherent qualities of the new program, the blog will expound on the impacts of this program on the housing and real estate sector. Suggestions to improve the implementation of this program are also given.
Research Questions
- What is the current housing situation in Pakistan?
- What is the Naya Pakistan Housing Program?
- Can NPHP fulfil Pakistan’s housing demands?
- Way forward for Pakistan’s housing sector?
Introduction
The shortage of housing in Pakistan is not a result of overpopulation, as the elite often try to frame it. Instead, it is due to the massive income and wealth inequality in the country. Ninety-nine per cent of housing in Pakistan is beyond the buying power of 68 per cent of the population (Hassan & Arif, 2018). In the past, attempts have been made to rectify the shortage by introducing housing schemes like the Ashiana housing scheme. However, poor policy implementation, lack of transparency, and problems in the construction and balloting process led to the failure of the said scheme. The government has now launched the Naya Pakistan Housing Program (NPHP) in an attempt to fulfil this housing backlog by providing five million homes in a period of five years to the lower and middle-class groups. The estimated cost is pitched at $180 billion, and it remains debatable whether the plan will fulfil the housing needs of Pakistan or become a mismanaged disaster. Therefore, the Naya Pakistan Housing Program has the potential to solve the housing crisis in Pakistan. However, if NPHP is left to the whims of the same interest groups that control urban land, and falls short of fulfilling the milestones set by the planning team, it will reinforce current disparities and face the same fate as previous attempts to provide affordable housing.
The Problem of Housing in Pakistan
The housing sector in Pakistan has been long neglected by the political leadership and has not moved beyond slogans and promises. Two-thirds of Pakistan’s population lives in rural areas with the current overall housing backlog at 11 million housing units (Rizvi, 2018). Pakistan is the seventh most populated country in the world. According to a census conducted in 2017, the population stands at 207 million with a growth rate of 2.4 per cent during the intercensal period (Hassan & Arif, 2018). Housing is a basic need for people. The house price to income ratio in Pakistan is 20 to1 compared to the global average of 5 to 1. The wide gap between the income and wealth of masses and housing prices means that most of the lower and middle class is not able to afford their own home.
Land prices have also increased by 152 per cent since 2012 (Hassan & Arif, 2018). Since people cannot afford the exorbitant cost of land, encroachments on public land have led to the formation of ‘Katchi abadis’ whereby land grabbers and property traders collude with politicians to capture land and extort the poor. Later the government can at any time decide to remove such settlements in favour of other developmental plans. Nearly 60 per cent of Karachi’s population resides in informal settlements (Anwar, 2019).
Affordability of houses can be addressed by following the mortgage financing model. However, less than 30 per cent of savings find their way to the financial sector, which in turn reduces the capacity of banks to offer easy financing solutions. (Hassan & Arif, 2018). A regime of urban development which privatises land and promotes speculative trading in real estate instead of the fulfilment of people’s social and economic needs also makes the purchase of land inaccessible to the lower and middle class. Therefore, Pakistan faces a severe crisis of housing, which has led many to question if they will ever own a home.
The Naya Pakistan Housing Program
The housing sector is a key driving force behind the economic development of any country. It is associated with many upstream and downstream industries and creates demand for skilled and unskilled labour. Looking at the condition of poor and the salaried class individuals, the Prime Minister of Pakistan launched the Naya Pakistan Housing Program (NPHP) in 2019 to provide affordable housing to the masses by combining elements of public-private partnership. The agenda is to provide five million housing units within a period of five years in the form of houses, apartments, and high-rise buildings. The role of the government will be of an enabler and facilitator, not the developer. Forty-one companies have given proposals for the construction of houses under the program (Raza, 2018). The project will also be completed in collaboration with banks which will incentivise the purchase of units based on the mortgage financing model.
The policy maintains that borrowers are not supposed to pay more than 30 per cent of the property value as down payment which can also be paid in instalments. In deserving cases, the limit could be reduced to 10 per cent of the value (Rizvi, 2018). This will help the lower middle class to afford to houses and not place the burden of a lump-sum payment. The policy also aims to improve the sewerage systems, water supplies, service roads, electricity, parks, and basic health facilities and educational facilities in urban and peri-urban areas. There will be zero tolerance for the existence of slums and Katchi abadi’s. One estimate indicates that a 100,000 increase in housing units in a year could drive growth in over 50 connected industries and contribute as much as 2.2 per cent of the GDP to overall national output.
Can NPHP fulfil Pakistan’s Housing Demands?
There are a number of concerns which are fast emerging regarding the Naya Pakistan Housing Program and its viability as a solution to the housing problem of poor and lower-middle-class group. Housing policy in Pakistan has always served the interests of the rich and privileged, and the NPHP will struggle to break this mould. The NPHP is not Pakistan’s first major public housing program, from Karachi’s Korangi in the 1960s to the resettlement of Katchi abadi residents in the 2000s, the Government of Punjab launched the Ashiana Housing Scheme in 2010, but delays in construction and balloting led to accusations of irregularity and eventually the arrests of those involved in the project.
According to a federal minister for housing, the Pakistan Housing Authority was only able to make 580 homes for the government sector employees in a decade (Khalil, 2019). It is feared that the inexperience of the government in conceiving, planning, delivering, and monitoring such a large and ambitious project may render the efforts being invested in the NPHP to be ineffective. The fiscal and monetary policy measures adopted to push start the construction are expected to facilitate the real-estate developers and builders in unlocking their untaxed or illegal money stashed in the form of cash or parked in the form of real estate. This will provide for a good kick start in the industry, but sustainability ultimately depends on the ability of banks to provide loans and mortgages for the housing units. Since the government wants fast action on the project, some officials are also trying to repackage or rebrand existing housing schemes into the project. But existing housing schemes do not cater to the poor or middle-class groups; rather they are designed to the privilege of federal government employees, resourceful real estate agencies, and developers who make huge profits off of the land.
Mortgage finance in Pakistan is virtually non-existent. Pakistan’s mortgage finance-to-GDP ratio (referred to as mortgage depth) is at 0.23 per cent — the lowest in South Asia (Khalil, 2019). Even those who do get their homes financed have to pay 52 per cent of the value from their own savings. This shows a great lapse in the banking sector to provide for such a large and massive scale of funding. Another flaw is that the present mortgaging model has strict eligibility criteria’s which most of the middle to lower-income class do not fulfil. The method of measuring the repayment capacity of a borrower is also cumbersome for the poor as the borrower’s income history and future potential are not documented properly. The last flaw is that the NPHP envisages non-high-rise buildings as the core of the initiative. They require vast tracts of land and such areas are outside main urban centres. This would ultimately mean that people will live far away from city centres and thus, jobs.
Suggestions for Naya Pakistan Housing Program
A number of reforms are needed to tackle the housing situation in Pakistan and break the norms of housing policies hurting the poor and middle class. Urban planning reform is among the most required area of attention. There should be affordable housing regulations which obligate each developmental project to include affordable housing units provided at a subsidised cost to the eligible. Another vital area which needs attention is the land records system. If five million housing units are to be constructed and applications reviewed, a clear and transparent database will go a long way in preventing land fraud cases and raise the confidence of the general public in the program. Finally, banks should review their credit appraisal policies for the poor and facilitate in the process of mortgage financing.
Conclusion
Pakistan faces a severe crisis of housing in the entire country. With much of the lower and middle class struggling to even buy a piece of land, it is a matter of grave concern. The government has taken another bold initiative to give five million families a chance at their own home, but proper planning, record-keeping, developing, monitoring, and policymaking can make the program a success.
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