Low Income Housing through Market: Prospects, Policy & Strategy

Government needs to facilitate the private sector for meeting housing shortage, PRIME Study

Low income housing is not only a basic social need but also a stimulus to the economic development of a country. Despite being such an important agent of economic growth it is the least discussed area in socio-economic advancement in Pakistan. Recently, Policy Research Institute of Market Economy (PRIME), launched a study conducted by Mr. Shahid Mehmood titled “Low Income Housing through Markets: Prospects, Policy and Strategy” here at a seminar yesterday.

Low Income Housing through MarketAccording to this study, the gap between supply and demand of housing is approximately 9 million units, continuously increasing by an estimated 0.7 million units per year. Furthermore the situation is adverse in urban areas due to rural urban migration. The study identified the inability of the people from low income strata to own assets preventing them from securing loans and thus making the construction of their house extremely difficult. Based on his study, Mr. Shahid recommends that the government should work in tandem with the private sector and redefine its role in provision of low income housing; it should also develop primary and secondary mortgage market to develop innovative financing methods. Upon commenting on the impact of improved housing, he said that globally construction and housing are seen as GDP enhancing activities and also create both short term and long term employment.

Addressing the seminar, Muhammad Irfan, Director General National Housing Authority and focal person of Prime Minister’s Low Income Housing Programme highlighted various policy measures that the government is undertaking to expand housing access of the low income segments.

Deputy Governor State Bank of Pakistan (SBP) Mr. Saeed Ahmad, congratulated PRIME Institute and Mr. Shahid Mehmood on launching of this study. In his message, he said that construction and housing sectors have forward and backward linkages with almost 40-50 industries and a large percentage of the unskilled labor is linked with this sector. Resultantly, an increase in spending towards this sector has a multiplier effect and capacity to generate earnings as high as five times of the expenditure incurred. Furthermore he shed light on some of the initiatives taken by SBP including issuance of Prudential Regulations for housing finance and the incorporation of Mortgage Refinance Company (MRC).

While commenting on the study Mr. Zaigham. M Rizvi, Secretary General Asia-Pacific Union for Housing Finance & Former Chairman HBFC, highlighted the usage of low cost housing in political sloganeering and said that the last government of Pakistan Peoples’ Party (PPP) and the current government of Pakistan Muslim League Nawaz announced their own low cost housing programs. The PPP promised to build one million low-cost houses whereas PML-N promised to build 500,000 but unfortunately both the programs failed to achieve the set targets. Furthermore he also discussed the low- cost housing statistics and said that Pakistan is one of the very few countries where housing finance is gradually on the decline. This is evident from the fact that the Outstanding Mortgage Debt to GDP ratio in Pakistan has declined from 1.0 % a few years ago to around 0.5% presently.

Sharing his comments, Mr. Arif Jeewa, Chairman of Association of Builders and Developers (ABAD) Islamabad region, congratulated PRIME Institute for undertaking this initiative. Arif Jeewa shared private sector proposal for the PM Low Income Housing program. According to him, ABAD is ready to build 4-5 marla houses for low income at around Rs. 1 million, including the cost of land, as long as the government can provide trunk infrastructure and utilities.

Addressing the seminar, Dr. Zahid Asghar said that there has been over focus on private sector engagement but without due focus on changing zoning laws which are main hurdle for not attracting private sector investment in construction sector. Dr. Asghar favoured mixed zoning, combining commercial and residential activities. He also proposed a ban on new housing societies unless existing housing societies reach a minimum density standard of around 1500-2000 people per hectare.

According to estimates by a low income housing entrepreneur, Jawad Aslam, 68% of Pakistan’s population has only 1% of total housing stocks whereas 56% of housing stock is meant for 12% of upper income segments. There appears to a huge untapped market and unmet demand for housing units in the urban areas particularly for the low and lower-middle income segment.

Executive Director PRIME, Mr. Ali Salman highlighted the current policy towards housing which is focused on horizontal expansion of cities, rigid zoning laws in urban areas, restrictions on building heights and high mortgage costs. According to him, this has led to a manifold escalation in real estate prices which has negatively affected the construction of low cost houses. He was of the opinion that the government should ban on development of empty plots either by itself or by the private sector, heavily penalize ownership of more than one house and relax building height limits. These three steps will at once eliminate speculation and deflate property prices – thus developing housing market for the two-third of Pakistan’s population.

Dr. Almut Besold, resident representative of Friedrich Naumann Foundation for Freedom, which sponsored the study and the seminar, earlier welcomed the guest speakers and participants.

Low Income Housing through Markets: Prospects, Policy and Strategy 6th May 2015 Islamabad

Posted by Policy Research Institute of Market Economy – PRIME on Friday, 8 May 2015

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