First things first: the spirit behind the government’s Naya Pakistan Housing Programme (NPHP) must be commended.
The struggle for dignified housing in Pakistan has a long history replete with brutal evictions of katchi abadi dwellers, political and legal resistance by groups like the Karachi Indigenous Rights Alliance, the Alliance for Katchi Abadis and the Awami Workers’ Party (AWP), the cumulative efforts of low-income housing pioneers like Arif Hasan and Tasneem Siddiqui, and the sacrifices of fearless activists like Perween Rehman.
Nonetheless, the prime minister deserves credit for placing affordable housing at the centre of the national policy agenda, a long overdue imperative. The question is, will the plan actually improve the situation or will it reinforce the glaring disparities in housing provision in Pakistan?
There appear to be some sound proposals in the plan. The government intends to earmark under-utilised state land for what is to be affordable housing construction.
This construction will be financed by the private sector and through commercial bank lending, for which state land would be used as collateral.
A new finance regulatory body will be created to help develop financing options and increase housing mortgage lending. The programme will also aim to generate employment and boost ancillary industries like construction.
Related: Is PTI’s affordable housing programme just old wine in a new bottle?
Understandably, much of the debate thus far has been dominated by the ambitious and somewhat unrealistic scale of the initiative: five million homes estimated to cost $180 billion over five years.
As journalists like Shahzeb Khanzada have correctly pointed out, it is highly unlikely that commercial banks will extend affordable mortgage credit in the current economic reality of high interest rates and the impending inflationary pressures of an International Monetary Fund programme.
Further, the chances of commercial banks financing $180bn of housing construction seem improbable in a country where the total loan portfolio of the private sector does not exceed Rs4.4 trillion ($33bn) and bank deposits remain woefully low.
However, the quibbling around targets distracts from more fundamental questions about the design of the initiative.
The NPHP essentially proposes to address Pakistan’s housing shortage by inviting private sector investment in new housing construction financed through an expansion of the mortgage credit market.
Will the NPHP be able to do so or does the design of the initiative misunderstand the nature of Pakistan’s housing crisis?
A man-made crisis
The shortage of housing in Pakistan is not, as state elites like to claim, a ‘natural’ consequence of overpopulation — it reflects the entrenched income and wealth inequality in the country.
Pakistan’s rapid urbanisation (one of the fastest in South Asia) has been driven in part by widespread rural landlessness, entrenched social discrimination and violent conflict in the country’s peripheries, which has led to millions streaming to cities in search of security and economic opportunity, pushing up housing demand.
However, the supply in the formal housing market (dominated by the private sector) does not match the needs of the majority of citizens. Ninety-nine per cent of housing in the formal market is beyond the buying reach of 68pc of the population.
This is, in the first instance, because existing housing prices far outstrip median household income — according to the State Bank of Pakistan, the house price-to-income ratio in Pakistan is 20:1 (compared to a global average of 5:1).
This gap between housing prices and incomes is widening; between 2012 and 2017, housing prices in Pakistan more than doubled and rents grew by 180pc, while incomes grew by only 15pc in the same period. Much of the spike in housing prices is driven by land prices, which have risen by over 152pc since 2012.
The (un)real estate sector
Why have housing and land prices outstripped income growth so spectacularly? The answer is closely related to the exponential growth of speculative trade in real estate in Pakistan.
Pakistan’s real estate sector, which grew by 118pc in the last five years, is one of the least transparent or regulated in the world. Until 2014, the sector wasn’t even taxed, with the state maintaining a ‘no questions asked’ policy about the source of capital, turning it into an ideal destination to launder money and hike up prices through artificial bubbles.
Despite boasting assets now estimated at $700bn, the sector contributed just Rs23bn in tax revenue in 2018 — less than 0.1pc of GDP. This lack of regulatory and financial oversight has enabled, in the words of the sector’s own representatives, “the trading of real estate as a commodity by speculative investors” rather than a productive or usable asset.
Hence, despite consistently high returns on investment and a spike in China-Pakistan Economic Corridor-related foreign investment, the sector has failed to invest in housing production, preferring the rapid capital gains from speculative trade in upscale developments, pushing up prices and limiting affordable housing supply.
The NPHP correctly identifies insufficient bank lending as an obstacle to construction. Yet, this fact itself is connected to how speculative real estate has become a capital trap.
It absorbs billions in national savings as well-off households increasingly prefer the safer and higher returns of real estate ‘plots’ rather than financial savings, severely limiting the pool for bank lending and investment.
Ever since the property boom of the early 2000s, consistently less than 30pc of national savings have found their way to the financial sector. This unsustainable status quo has been allowed to persist largely for political reasons — the real estate sector has a very powerful nexus of patrons.
This includes the major developers (including Defence Housing Authority, Bahria Town and others), propertied political elites and city ‘planning’ bureaucracies (like Capital Development Authority and Lahore Development Authority) that have colluded to commodify and privatise hundreds of thousands of acres of public and agricultural land for profitable real estate ‘development’ in recent years across the country.
As Dawn and others have documented, this process often takes the form of land grabs and forced eviction in the name of ‘public interest’ through colonial-era laws like the Land Acquisition Act of 1894.
The lure of speculative investment in new schemes has been encouraged by outdated and unenforced zoning and land use laws, that have incentivised sprawl over densification.
Suburban gated communities have proliferated around all large and medium cities, with hundreds of thousands of large residential plots within them lying unconstructed and unoccupied for years, placing an avoidable strain on essential services and infrastructure. In Karachi alone, over 200,000 residential plots and 62,000 apartments were vacant in 2015.
Katchi abadis are the underbelly of this development model, where an intermediary class of land grabbers (or property traders) leverages its relationships with elected and unelected officials to capture land and profit off the poor’s shelter needs.
These settlements, characterised by insecure tenure, densities of up to 4,500 people per hectare, negligible access to clean water or basic services and continual exposure to environmental hazards and eviction threats, now house over 45pc of the urban population.
They persist in such squalor because a rentier class both within and outside officialdom profits personally from state and market failures in housing. Pakistan’s crisis of affordable housing must be understood in this context.
The majority, including the bulk of the middle class, are unable to afford homes because of a regime of urban development that aggressively commodifies and privatises land and incentivises speculative, non-productive trading in real estate rather than investment in production for the fulfilment of people’s economic and social needs.
The failure of past, half-hearted attempts at low-income housing by governments is in large part because they did not acknowledge or address the contradictions in this model.
Unless fundamental changes are made in the structure of incentives and distribution of resources in our cities, there may be little to prevent the NPHP from becoming another speculative bonanza that pushes up prices while failing to meet the needs of its targeted population.
Even worse, the use of state land as collateral for mortgage credit in the prevailing climate of high interest rates could create a significant risk of a large scale transfer of public assets into private hands – similar to what occurred in the sub-prime mortgage crisis in the US.
Towards urban land reform
Building affordable housing and creating a sustainable model of urban development will require Pakistan to change how it develops and regulates land.
Critically, the state needs to encourage a shift away from the treatment of land as a speculative commodity and ensure a more judicious and efficient use of a scarce resource that carries immense economic, social and ecological value.
The following steps are a summary of the agenda for urban land reform we have proposed, in light of evidence and in consultation with low-income housing experts, during the course of our constitutional petition on the Right to Housing in the Supreme Court:
• Regulating and taxing real estate
Any process of reform must involve a concerted policy effort to document, regulate and adequately tax the real estate sector.
The objectives behind this must be threefold— to systematise and standardise urban land management and information, to generate revenue for the state, and to stimulate a transition of capital from inefficient and non-productive land-holdings towards housing (and commercial) production and financial savings that can fuel investment and credit.
This will be resisted by real estate lobbies of course, but the fact is, all relatively functional and well-performing housing markets around the world are tightly regulated ones with a strong state role.
Furthermore, freeing up capital from the speculation trap is fundamental to generating the finances required for construction and the savings required for financing credit.
• Changing land development patterns
The transition to equitable and sustainable land use must be facilitated in part by changes in the legal frameworks that govern land development, disposal and use.
To reduce distortions in the land market that drive up prices, the colonial land acquisition acts that allow developer oligopolies to commodify agricultural and state land for profit in the name of public interest must be reviewed.
To discourage suburban segregation, zoning laws must be changed to require state and private developers to dedicate fixed proportions — such as one third — of land in new investments for low-income housing and ensure minimum densities, smaller plots and mixed-use constructions within new schemes.
To prevent wasteful land accumulation and free up capital, penalties for non-utilisation and ceilings on individual ownership of urban land can be used, policies that have been applied to great effect in countries like India and Colombia.
• Formalising the informal
Instead of pursuing unrealistic targets for new housing units, the existing informal response to the housing shortage — katchi abadis — must be documented and upgraded on-site wherever possible.
This will reduce the cost of new construction and infrastructure, while ensuring security of tenure and access to essential services for millions of citizens.
Upgradation can be funded through a mix of self-finance, private investment and credit subsidies, as part of a planned, participatory programme of urban renewal and housing improvement, which can help revitalise decaying neighbourhoods and generate revenue through formalisation.
• Incremental public housing
The actual targets for new affordable housing construction must be based on an evidence-based needs assessment and effectively targeted to ensure it actually reaches low-income segments.
One effective method of targeting is the model of incremental housing, whereby households are provided subsidised access to land given they are willing to be part of the building process and ensure occupancy.
Under the incremental model, building components are gradually added and improved as funding and materials become available and property rights are granted over time.
This model has been employed in the past in projects like Khuda Ki Basti in Hyderabad (which ensured near 100pc occupancy on a largely self-financed basis) and serves as a filter to weed out speculative investment while ensuring lower costs.
• Mobilising communities
In order to better distribute the risks and costs intrinsic in home-building, alternative models of community-based ownership and tenure should be explored (instead of focusing solely on developers and individual homeowners).
This includes incentivising institutions like community-based land trusts, in which land is removed from the speculative market and leased to community organisations or cooperatives for building housing, business, agriculture and mixed-use infrastructure.
Community-based approaches have been employed with success in countries like Uruguay and Philippines and are also a useful way for low income households to gain access to credit as a community and ensure a shared credit burden.
• Democratising urban development
Pakistan’s housing crisis has reached this point because of an opaque city planning process in which small groups of civil-military bureaucrats have the authority to make (often poor, uninformed and self-interested) decisions about housing and land on behalf of millions of citizens, usually in collusion with private profiteers.
The composition of the prime minister’s housing task force — stuffed with bureaucrats and investors — appears set to continue this pattern.
Unless this cycle is broken, we will not be able to effectively utilise public resources for meeting the needs of citizens. This means we must decentralise and democratise the process of urban planning to include communities, architects, urban planners, social scientists, environmentalists and academics in decision-making about land use and urban development. Ensuring dignified housing for all must be made a central concern of this planning framework.
While these steps are likely to ruffle the feathers of established interest groups, they are essential for realising the goal of affordable housing for all. If the NPHP is left to the whims of the same interest groups that control urban land in Pakistan, we will simply reinforce the current disparities.
For genuine progress towards the right to housing in Pakistan, it is essential that we reassess our unhealthy, unequal and destructive relationship with land and build an urban development model that places our economic, social and ecological needs above the greed for unmitigated profit.