10 million!

It had to be said. This space has questioned many times over the past two or so years since the launch of the grand Naya Pakistan Housing Plan (by the now-ousted government of PTI) on what basis was the housing policy designed (most notably here: “Naya Pakistan Housing: The lies we tell”, May 21, 2020). This column wondered how PM Imran Khan arrived at the ambitious target of building five million new homes? Why five million? And equally, if not more importantly, where exactly did the oft-quoted number of 10 million housing shortage (where multiple sources have been found to be quoting the number back to each other) come from? The Pakistan Institute of Development Economics (PIDE) recently published a policy note questioning the same. Is Pakistan really short of 10 million houses? PIDE asks.

The note concludes that this number may in fact, be highly exaggerated. Using the Pakistan Social and Living Measurement (PSLM) survey for 2019-2020, the policy note argues that the problem of housing in Pakistan may not be that of “shortage” altogether but of “housing inadequacy” where current housing accessible to the population at large may be subject to congestion which is not the same as deficit. The real gap in the Pakistani housing market, the think tank argues, is in the quality of structure and access to civic amenities which is where the country is highly deficient.

The note prepared by Dr Durr-e-Nayab rightfully chides the government for never questioning the validity of this estimate and quoting it everywhere blindly. “And sadly, we have based policy on this assumption and initiated a large public housing effort at a considerable cost”, the policy note laments, and rightfully so. An entire policy with fiscal measures to boot (such as a mark-up subsidy and tax benefits to builders and constructors) was developed based on an arbitrary number. Probably, the philosophy was to build a few hundred thousand houses and see where it goes, like pinning the tail on the donkey blindfolded. How does one fill a certain gap when the gap is not a known quantity?

That said, how much has the program truly cost the economy remains unknown and may not be a consequential number yet given disbursements of the mark-up subsidy offered under NPHP have thus far been pretty low. The loan approval rate was about 42 percent under Mera Pakistan Mera Ghar uptil May-22 and about Rs 85 billion have been disbursed by banks (of the total approved Rs212 billion).

Since the SBP has not provided the number of borrowers this funding has gone to and the average size of the loan—very crucial information to evaluate the success, failure or progress of the program (read: “Housing Finance: Growth, but!”, Jan 12, 2022), we run a sensitivity analysis. Given that the maximum loan size possible under MPMG is Rs10 million, Rs 85 billion credit should translate to anywhere between 8500 to some 30,000 loans. That’s not a lot of loans! The World Bank has recently extended the refinancing facility to the Pakistan Mortgage Refinance Company (PMRC) and will be providing risk cover for mortgages under MPMG.

The government put aside Rs30 billion for the upfront subsidy for the first 100,000 houses under MPMG which to date would be the biggest cost incurred the program and probably remains under utilized since 100,000 houses have not been constructed and this many loans have not yet been disbursed. The other cost could be in the form of tax waivers for builders. The FBR approved about 2500 projects under the construction amnesty scheme. Given how deeply under-targeted the real estate industry is in terms of tax collections, the amnesty or loss of revenue should be little compared to the tax revenue potential from these new tax filers that FBR could rope in later on, fingers crossed!

With the World Bank now breathing new life into the housing project with additional financing worth $85 million to provide risk coverage to MPMG loans, the subject of housing is back in fore. The risk coverage is slated to provide risk adverse lenders to become more friendly toward the non-traditional client base comprising low and middle-income households. This could potentially jumpstart the snoozing housing finance market for sure.

But as PIDE points out, “the deficit is in the quality of life in the houses, not the absence of housing units” and the narrative that there is a huge housing shortage in the country—which as far as PIDE believes is incorrect—may have created an unnatural demand in the real estate market. The MPMG is designed for first-time home buyers/owners. If the problem with housing in Pakistan is “adequacy” rather than “deficit”, is the current housing policy in Pakistan solving the actual problem at all? This opens a whole pandora’s box of wicked questions that few will have the answer for. More on that later.