Low-cost housing

Last week housing supply and employment generation was covered with a perspective of market oriented solutions for A and B class housing for middle class urban dwellers. The shortage is even bigger for low cost urban and rural housing in Pakistan; and government intervention is imperative for providing roof to marginalized population.

The provisioning of low cost housing concept was initiated in the early days of PMLN regime; but the proposed housing policy and implementation plan could never reach the then PM Sharif as Dar was either not interested in housing or had other priorities. The policy died down in the very first year of the tenure.

The PTI has now asked Zaigham M. Rizvi, who also had spearheaded the PMLN policy initiative, to propose a comprehensive housing policy for the party. Rizvi is probably the best housing consultant in the country; and it’s important for PTI to own the policies and go beyond the paper work.

There are two ways to deal with low cost housing - one is that government produces housing itself and sell at discount to masses. This is not recommended at all; as federal government is fiscally strapped and, seeing the governance history in PSEs, pilferages are likely.

The coordination with provincial governments is of utmost importance, as they are not only cash rich but they also own land banks for housing. The federal government role is to provide a robust housing policy including enabling environment for private builders and long term housing finance for consumers.

In India, housing finance has increased to around 10 percent for GDP from virtually nothing 15 years ago. The private builder sees commercial viability in providing low cost housing solutions. The special purpose vehicles are operating to provide both supply and demand side housing supply.

Pakistan has to move on the same model. The government has land bank - according to ABAD 40 percent of land around Karachi is owned by provincial and local governments; the idea is for the government to provide land to builders for development with conditions of certain percentage (20%-40%) for low cost housing.

In order to arrest speculative interest in real estate, the builders should be bound to develop the land in certain stipulated time and should not be allowed to sell un-developed land. In case of housing at new localities, the low cost portion to be developed earlier and to be sold at low return to populate the developed land.

Once there is vibrancy in the community, it is easier to sell rest at market price. This will ensure neither ghettos to capture the developed land nor it to become ghost land. This is a cross subsidy model - a similar structure is piloted by Acumen Fund’s supported Ansar Management Company. The expertise of AMC team, especially Jawad Aslam, can be used in scaling up similar models.

AMC is doing a project in Faisalabad with a private textile group for providing housing to its employees - the policy framework should be to facilitate industrialists and businesses to provide low cost housing for communities and employees.

The shortage of housing is across the country; with around three fifth of population living in rural areas, the housing need in villages and small towns is even more pressing. We need to see the Modi initiative in India for housing for all. The target is to build 20 million housing units per year.

Seeing this PTI’s target of 5 million housing in 5 years is not outrageous. But for India, the market is developed in the last decade and now the sector is read to gear up.

The PTI agenda is too optimistic as it will take couple of years to conduct studies, make conducive environment for both housing supply and demand.
This is the step 1 and the development will be at snail speed in early days; once the framework is ready and teams are in place, the government can shift gears for having one million houses per year.

The question is what is the economic impact of these houses. The low cost housing is estimated at Rs1.800 per square feet versus Rs2,500 per square feet for A/B class as in low cost you need to provide two rooms, one bathroom, kitchenette and a veranda. Average cost of 450 square feet unit is around Rs0.8 million. Out of this a good chunk goes to government taxes on material and labour - such as GST, excise duty etc. The first fiscal support is required from federal government is to abolish the taxes, especially on cement and steel, ton lower the cost.

Assuming that with all government indirect support, the housing price to reduce to Rs0.6 million per unit. If 500,000 such houses are constructed every year, it will directly contribute around 1 percent of GDP. The impact on employment generation and 30-40 industries associated with it is much bigger.

The third article on the series will be on providing smart energy solutions for low and affordable housing.