Dr Hafiz A Pasha
The President of the ruling party, PML (N), Nawaz Sharif, has lamented recently in a speech at a public rally on the poor housing conditions of the vast majority of people of Pakistan. He has highlighted the need for launching a large low-cost housing program, whereby the rents paid can effectively be transformed into amortization of soft, long-term loans.
This is reminiscent of the mantra of the Pakistan People’s Party of the 70s of ‘Roti, Kapra aur Makan’. The focus now is on providing affordable and decent shelter. This will not only improve substantially the quality of life of a large number of households but it will also provide a stimulus to construction activity. This in turn will increase employment opportunities and raise the output of a large number of industries.
The basic question relates to what is the housing situation today? Have housing standards fallen and/or rents become more or less affordable? What is the rate of expansion in the housing stock and the magnitude of the housing shortage? The objective of this article is to try to find answers to these questions.
Following the Population Census of 2017, it is estimated now that there are almost 33 million housing units in the country. Over 12.8 million housing units, or almost 39 percent, are in the urban areas and the remainder, 20.2 million housing units in the rural areas. The number of units has increased from 25.5 million in 2007-08, on the average annually by about 833,000 units. A reasonable and attainable target should have been the addition of at least one million housing units annually. Compared to this, the shortfall is almost 17 percent.
The Pakistan Bureau of Statistics (PBS) gives estimates of the annual investment in ownership of dwellings or housing. The magnitude in 2016-17 is Rs 620 billion, equivalent to 20 percent of total private investment. This implies that the cost on average for a new housing unit in Pakistan is Rs 558,000 currently, excluding the investment in replacement of old housing.
The characteristics of the housing stock are derived by the PBS periodically from the Living Standards Measurement Surveys. They tend to also indicate a decline in housing standards in terms of size and quality.
The distribution of housing units by number of rooms reveals that almost half the units have only one or two rooms. This share is, more or less, the same in rural and urban areas, and has been increasing over time. For the housing stock as a whole, the average number of rooms per housing unit is 2.6. It has fallen by 3 percent since 2007-08. Overall, the growth rate of the housing stock is low at only 2.5 percent annually.
The quality of housing is also low. Over two-thirds of the housing units in Pakistan are either semi-pucca or katcha, on the basis of the material used in the walls or roof. Housing standards are better in the urban areas, with over 50 percent of the units based or RCC/RBC construction.
The distribution of housing units by tenure, that is, owner-occupied or rented, is changing over time. For Pakistan as a whole the share of rented units has increased to 16 percent. It is significantly higher in urban areas at 26 percent. This is due to limited access to housing finance and rapidly rising cost of construction. The cost of construction inputs and of wages of construction workers have increased by almost 10 percent annually since 2007-08.
A veritable housing squeeze is also being applied on households by the rapid escalation in housing rents, especially in the metropolitan cities. Over the last decade, rents on average have gone up two and half times. The result is that the share of housing rents and cost of utilities has risen rapidly. It is now in excess of 25 percent of monthly consumption expenditure in rural areas and over 30 percent in urban areas. This has cut into expenditure on other items, including food.
The plight of housing finance in the country is clearly visible. The magnitude of outstanding loans is only Rs 69 billion, according to the SBP. This is equivalent to only 1.3 percent of the total credit extended by financial institutions. The annual disbursement is less than Rs 22 billion.
The largest source of housing finance is the private and public commercial banks, with a share of 40 percent. Islamic banks are playing an increasingly positive role in extending credit for housing and their share has gone up to 38 percent. HBFC’s role has become more truncated and its share is down to 22 percent.
The extremely limited access of small borrowers is highlighted by the fact that their share in housing loans, with credit of less than Rs 1million, is only 5 percent. Borrowers with loans above Rs 5 million have a share of over 50 percent. The total number of borrowers is a paltry 69,365, while the number of new borrowers in 2016 is 3,979 only.
Some attempts have been made in the past to develop low cost housing for low income households. The Ashiana scheme was started by the Government of Punjab but there has been a failure in up-scaling this scheme. According to the MoF, only Rs 0.4 billion of expenditure was incurred by the federal and provincial governments combined on low-cost housing in 2016-17.
In line with the concerns expressed recently by the President of PML (N), the time has clearly come to focus on housing for the lower income quintiles of households. Real estate developers may be motivated to move into the lower segments of the housing market through generous income tax and other concessions. This could include a big reduction in the presumptive income tax on contractors on low cost housing.
Simultaneously, financial institutions may be given a relatively large tax credit on the increase annually in the quantum of loans for housing. Further, tax deductibility provisions may be introduced for covering the cost of writing off non-performing loans of small borrowers. There is no doubt that housing conditions need to be improved in Pakistan.
(The writer is Professor Emeritus at BNU and former Federal Minister)
