KARACHI: With Pakistan’s population projected to grow over half a billion by 2100, a policy brief published last month by the Karachi School of Business and Leadership (KSBL)’s InsightLab research centre warns that the housing system is failing to produce enough housing units at a price point accessible to most households.
According to the brief, ‘Urbanisation, Housing Supply and the Credit Gap in Pakistan’, the country’s cumulative housing deficit is estimated at over 10 million units and growing and it needs close to one million new units per year. However, the formal housing sector faces land acquisition challenges, complex regulatory approvals, high construction costs, and limited access to financing, resulting in a structural shortage that drives up prices and forces lower-income households into informal settlements or substandard housing.
The problem is aggravated by the intense concentration of housing demand in small pockets of urban land, with the top 20 districts by population density accounting for 42.0 per cent of Pakistan’s total annual demand despite occupying just 5.0 per cent of national land area. The brief argues that these are the districts least equipped to deliver, with Karachi’s districts having virtually no developable space left.
Experts who spoke with The News also pointed to shortcomings in how urban population inflows are managed and how housing demand is distributed across cities. Fatima Zaidi, a member of the Karachi Bacaho Tehreek, a movement of demolition-affected people and their allies in Karachi, says that “no factory or business owner is held to account for the fact that they are supposed to provide proper housing to labourers”, leaving poorly-paid workers to fend for themselves and driving them into informal housing.
Mutaher Khan, head of InsightLab at KSBL and one of the co-authors of the policy brief, argues that “if you can improve infrastructure and public transport, you can help distribute or take away some of the pressure from the city proper and towards the outskirts, which would help somewhat normalise [house] pricing”.
Government schemes aimed at addressing the housing supply gap have not been successful. The policy brief cites the ‘Naya Pakistan Housing Program’ launched in October 2018, which targeted five million houses but delivered only 21,980 low-cost houses by mid-2022.
While structural problems in the formal housing sector, poor planning and intense concentration of demand push housing prices upwards, a lack of formal financing leaves those looking for a home without the money needed to bridge the gap.
As per the policy brief, high appetite from the government has diverted liquidity towards treasuries and crowded out private-sector credit, which stands at just 9.2 per cent of GDP. Personal finance is just 11.0 per cent of this constrained private credit total and mortgages account for just 4.0 per cent of personal finance or Rs507.2 billion.
However, the brief claims that even this figure overstates the depth of the mortgage market as it combines both house loans to both consumers and bank employees and the latter is a big driver of mortgages in Pakistan.
When asked why the mortgage market is so shallow, Mutaher Khan said that “credit markets in Pakistan are generally very shallow” and that overall lending in Pakistan is predominantly short-term, whereas “mortgage by design is supposed to be long term”.
This is a point echoed by the Pakistan Banks Association (PBA), which says that “A mortgage is a commitment of 20 years or more, and it thrives only where interest rates are predictable and in single digits over a sustained period. Pakistan’s economic performance has been choppy, and the path of interest rates correspondingly hard to predict, which makes both lenders and borrowers wary of locking into long-tenor commitments”.
Financing issues also impact the supply side of the housing deficit, with the PBA claiming that “Small and medium builders, who would naturally serve the lower-income segment, are effectively locked out of formal finance: their cash flows are opaque, their land titles are often unclear and the sector carries a history of project delays. Unable to raise construction finance, they de-risk by building for higher-income buyers who can pay upfront, and the lower-income segment is left to the informal market”.
While the government has experimented with subsidised credit schemes to catalyse demand, the brief claims that, without parallel programmes addressing land availability, construction costs or developer incentives for affordable units, demand subsidies risk simply inflating prices.
