Housing shortage in Pakistan – a priority issue

(By: Dureen Ance Anwer, Manager Strategic Communications-APR)

A report published by the World Bank in 2008 states that “in Pakistan, the cost of construction of houses ranges from $9.60 to $12.00 per square foot for low-cost housing, from $16.70 to $19.10 per square foot for middle-cost housing, and $26.30 to $35.80 per square foot for high-end housing”. And according to the Human Development Index, over 60% population of Pakistan is earning less than $2.00 a day. State Bank of Pakistan’s annual report for the year 2009 - 2010......

declares that approximately 40 percent of population in the country is forced to live around the poverty line. Consider all these statistics together from the point of view of the average Pakistani wishing to build or purchase a house that he or she can own. The net conclusion – this is seemingly an impossible dream, with most people not even earning enough to sustain a decent living.  

In February 2010 a World Bank consultant on housing and housing finance in Pakistan, stated that the housing shortage in Pakistan has reached an unprecedented high of 7.57 million units. On average, there are 6 persons for each housing unit, with an average of 3.5 persons per room. These figures have since only worsened after the devastating floods in Pakistan in the summer of 2010. The official website of the United Nations Office for the Coordination of Humanitarian Affairs informs that almost 1.9 million homes were either destroyed or damaged during the floods. And at least 10 million people are still without shelter.

By comparison, other countries in the region are seemingly better off than us, if not in absolute terms, than in relation to their population. The World Bank’s report “Expanding Housing Finance to the Underserved in South Asia” estimates the urban housing backlog in India to be 27 million units. The same report suggests a shortage of about 5 million houses in Bangladesh. What is interesting to note is that in a war ravaged country like Afghanistan the estimated housing shortage presently stands at 1.0–1.5 million. Since reaching housing standards of countries in the West will remain a Utopian ideal, Pakistan can at least look up to an Asian country, Singapore and its model of providing housing facilities to its lower and middle classes.

In 1960, post-independence Singapore was facing an acute shortage of housing. Then the Housing and Development Board of Singapore came into action and set a target of eradicating the shortage in five years. Today, over 80% of Singapore’s inhabitants live in the housing schemes developed by this board and 95% actually own their property. A phenomenal achievement by any standard and something that needs to be thoroughly examined as a case study.

Owning a house they can call their own thus remains a dream for millions in Pakistan. Pursuing this dream and unable to afford permanent construction, they end up opting for semi-permanent and even temporary or ‘kutcha’ dwellings. The majority of people from low-income groups especially are thus forced to dwell in hovels in sprawling slums. In Karachi for example, the number of slums has risen to over 600, housing some 8 million people of the estimated 16 million people living in the city. On a countrywide basis, only 29% of the housing units are modern brick construction. With a population growth rate amongst the highest in the world, the backlog of housing units in Pakistan will only become worse in the years to come unless there is a concerted effort to tackle this burgeoning issue on a war footing. 

A key issue to be addressed is the ratio of housing finance to GDP. This is below 1.0% in Pakistan, whereas in developed countries it is 50 to 70%! The State Bank reports that public and private sector banks together handle 18.90% of mortgage clients by numbers, whereas DFI’s, Islamic and foreign banks are catering to only 4.43% of total mortgage clients. According to the World Bank, the House Building Finance Corporation Limited (HBFCL) is the only institution that caters to the financing needs of middle and low income groups in the country, handling 76.67 percent of the total number of mortgage clients. Given that overall Pakistan has the lowest outreach in South Asia (after Afghanistan), HBFCL has come out as the biggest housing finance institution because of its huge outreach compared to the other housing finance providers.

It would therefore appear that HBFCL is the key housing finance institution that needs to be strengthened and supported as the institution best placed to effectively address the housing shortage issue. A comprehensive transformation programme now being enacted testifies to the commitment of the present management to bring about revolutionary changes. The strategy is designed to aggressively bring about far-reaching reforms in every section of the organization and in every sphere of operation. These include credit & recoveries, internal audit, legal, financial administration, human resources, business development & customer services, strategy, marketing/PR, corporate affairs and risk management.

For international bilateral, multi-lateral and institutional donors intending to cover the housing sector in their support-to-Pakistan portfolios, the transformation taking place in HBFCL is a significant and an encouraging development. Donor agencies all over the world look to capable local partners to be the vehicles of change. In many development areas we have seen donor frustration because of funds not being efficiently utilized. The construction sector is generally regarded as the backbone of any economy and is one of the main indicators of growth. More than 40 industries are allied with this sector. Supporting housing construction in Pakistan as a priority, especially in the post-floods scenario, therefore makes good sense for international donors. Not only will it help address the dire need for housing, it will also stimulate the overall economy, creating jobs and providing impetus to a wide range of vendor industries.