Our housing crisis

The purpose of this article is to outline the magnitude of Pakistan's burgeoning housing crisis caused by population growth, rapid urbanisation, and the resulting mushrooming of slums in large cities and towns across the country. It will attempt to analyse the reasons for persistent failure of Governmental responses thereto and make recommendations for appropriate remedial responses.
Background At the time of Partition Pakistan had a population of 32.5 million. Latest United Nations estimates put current population at 191 million with a compound annual growth rate (CAGR) of 1.49%...a pace at which we will be a teeming mass of 221 million souls by 2025.
Meanwhile, unmitigated economic migration of rural populations to urban centers in search of livelihood has resulted in a three times faster urban growth (CAGR of 4.25%). Sixty-eight years ago, the country's urban population of 4.5 million was a mere 15% of the total, ie, we were primarily a rural society. Today's urban population of 75 million is 39% of total population and will rise to 114 million by 2025 when it will be 52%. In other words, over the next 10 years, Pakistan will become an urban majority society.
Half of our current urban population, ie, 37.5 million (5.4 million households), already lives in unplanned, ramshackle and unhygienic slums called Katchi Abadis and it lacks access to clean drinking water, covered drainage or secure power...what to talk of recreational public parks, convenience shopping, and neighbourhood schooling. At the same time, TV channels bombard us daily with enticing clips of swank housing societies for the affluent replete with high-end shopping malls, theme parks, artificial lakes, and golf courses mushrooming around the periphery of all major cities and large towns.
At the current conservatively estimated density of 7 persons per lodging, we already need 27.3 million housing units. Against this benchmark, existing units are charitably estimated at 19 million...a shortage of 8.3 million housing units of which two-thirds are urgently needed in urban centres if we wish to clean up the slums.
In addition to the aforementioned shortfall in stock of shelters, the present exponential rate of population growth demands 406,000 additional units per annum against supply of only half as much...creating incremental annual shortfall of 200,000 housing units, at least half of which are needed in Katchi Abadis of urban areas. In short, unless we spend at least PKR 75 billion a year for construction of 100,000 low-cost housing units (on average costing PKR 750,000 a unit), our cancer of Katchi Abadis will continue to grow. But is spending just under 2% of the annual budget on this crying national priority so difficult?
Governmental responses to date In the 70s and the 80s, deeming Katchi Abadis unacceptable eyesores, political governments bulldozed squatter settlements in favour of affordable housing in the outskirts of cities like Karachi. However since adequate funding was not provided commensurate with demand, and because the constructed shelters were pricy (average low-cost house being PKR 2.5 million), the poor could ill-afford demanded down-payments and resulting mortgage instalments at a time when minimum wage was PKR 4,000...a level at which even a minimum two rooms mortgage supported shelter costing over PKR 250,000 was unaffordable. Clearly, governments of the day were living in a world totally cut-off from ground realities and evinced little sympathy for the lowest rungs of society.
A little later, the Zia-Junejo regime also experimented with ownership rights for residents of Katchi Abadis with an Apni Basti project for 135,000 low-cost units. Only 35,000 of these were eventually constructed and the plan flopped because no provision had been made for water, sewerage, or gas. Even paved public access was not provided. A similar fate befell a half-hearted attempt at development of public housing for the neediest using Zakaat funds and by grants to parliamentarians to do the needful (all the political worthies, of course, simply pocketed the cash). Nawaz Sharif's Mera Ghar Scheme of the late nineties, which was completed by Musharraf government a decade ago, was also a case of too little too late.
In its third stint, the present government announced a Low Cost Apna Ghar Housing Scheme in November 2013. The PM called for construction of half a million housing units spending KR 6 billion a year at 1000 selected places around Pakistan. Since the cheapest 300 Ft 2 shelter would today cost half a million Rupees, the PM's proposed PKR 6 billion largesse could have only built 12,000 shelters a year...an indicator of the paucity of thought process that one observes in political statements. Two and a half years later, however, the scheme only exists on paper.
Chief Minister Shahbaz Sharif's own Ashiana housing scheme in Punjab has also largely remained stillborn with reportedly only 370 housing units constructed in the two and a half years to date. In desperation, he has now sought assistance of TOKI, the famous Turkish Housing Development Administration. Thus, the historical lack of governmental understanding or even empathy regarding low-cost housing continues unabated.
On ground, nearly all housing activity remains concentrated in the private sector and that too, in upper middle-class and affluent housing developments via sale of serviced lots, ie lots sold in schemes with developed public spaces, utilities and access roads. This includes the DHAs, Askari Housing Complexes, Bahria Towns, and scores of other such ongoing developments in all large cities and major towns. Private societies solely focused on needs of the poor and low-income groups that need 50-75sqyds (2 to 3 marla) units are rare to non-existent.
Given the foregoing historical snapshot, it is perhaps instructive to review the failed Governmental attempts at creating requisite institutional frameworks to satisfy the country's desperate need for low-cost housing.
Ministry of housing and works This federal ministry is responsible for acquisition and development of sites as well as construction and maintenance of federal government buildings. It co-ordinates civil works; budget, fixation and recovery of rents from Government owned/hired and requisitioned buildings. The activities like management of Federal Lodges, federal government lands, licenses to various co-operative housing societies in Karachi (except those under different Ministries),administration of officers belonging to the Engineering Group, registration of Housing Authorities, National Construction Limited, and Housing Foundation. It has three Attached Departments and three Autonomous Bodies, namely, Estate Office Management, Federal Government Employees Housing Foundation, National Housing Authority, Pak Public Works Department, and Pakistan Housing Authority. In short, the Ministry is a federal bureaucracy that bears no direct responsibility for provision of shelter to the neediest sections of society.
National Housing Authority (NHA)This institution was established in 1987 to solve the problem of housing for the poor. Its task was:
-- To recommend the most appropriate plot sizes for low-income group in urban and rural areas (a no brainer that only requires visiting several Katchi Abadis).
-To develop standard house designs for different climatic regions of the country (a one-day exercise trawling the internet to see solutions already adopted worldwide); and;
-- To suggest the appropriate building materials and construction methods for the proposed house designs (again several solutions are readily available on the internet).
Over the past 30 odd years, none of the foregoing criteria and goals has been met while the Authority's massive bureaucracy continues to burden the exchequer.
Pakistan Housing Authority PHA Foundation is a Public Company registered with Securities and Exchange Commission in 1999. Being one of the implementing arms of Ministry of Housing & Works, PHA Foundation claims to be striving for elimination of shelterlessness and to reduce the housing shortfall in Pakistan.
Its mandate is to provide low cost housing units for low and middle income groups of Pakistan on ownership basis. Since inception, PHAF has built several housing units for general public and Federal Government Employees at prime locations of Federal and Provincial Capitals. It claims to provide high quality and state-of-the-art buildings but at low and affordable prices (the lowest price being PKR 2.5 million).But, over the past 15 years it has managed to erect only a few thousand housing units...none of which address needs of the 4-5 million households of the Economically Weak Segment (EWS) and Low Income Groups (LIG) of the country who populate the slums in most cities and large towns.
Federal Government Employees Housing Foundation Federal Government Employees Housing Foundation was set up in March 1990 under the Companies Ordinance 1984. It was tasked with implementation the self-financing housing schemes on ownership basis for Federal Government employees. Within a span of five years, about 16,000 houses were constructed under the said scheme in Islamabad and about 4,000 plots were allotted to successful applicants with an option to undertake construction under their own arrangements. In short, it has no truck with housing for the poor and has, in any case built only a few hundred housing units a year during the past quarter century.
House Building Finance Corporation (HBFC)Through an Act of Parliament, this Corporation (now a limited liability Company) was established in 1952. Its stated purpose was funding of construction or purchase of new houses by lower and middle-income borrowers. Unfortunately, the crucial enabling ingredient of adequate long-term funding for its proposed activity was addressed in a rather cavalier fashion. Instead of empowering the Corporation t to take in cheap customer deposits or issue its own GOP guaranteed long term tax exempt bonds, it was hamstrung with limited advances from SBP at market interest rates. While this put a tremendous crimp in the volume of credit extension to needy borrowers, bureaucratic procedures adopted for disbursements further attenuated efforts to achieve economies of scale needed for nationwide impact. Potential genuine borrowers were confronted by a veritable obstacle course that deterred large scale development of low-income housing. For instance:
-- An applicant is required to submit ownership documents to land, architectural drawings duly approved by concerned planning and development agencies, and a verified income certificate. This extinguishes 95% of demand at the very outset because the neediest segments of society do not have wherewithal to even purchase 50 square yards, which today costs over PKR 500,000 in most metropolises.
-- 40 percent of the net declared income of the applicant or guarantor is accepted as repayment capacity (a ratio over 30% is generally deemed excessive). Low wage earners are therefore deterred from seeking credit that, after paying monthly mortgage instalments, would leave them precious little for day to day living expenses.
-- Upon approval of application, land and the house (to be constructed) is assigned to HBFC as collateral, to be released when all instalments and dues are cleared.
-- A variety of onerous fees are standard. They include proposal processing fee, legal fees, group life insurance premium, and cost of the assignment deed form. All these add to the borrower's burden.
-- In an effort to keep the recurring burden of its high interest rate mortgage low, repayment is structured over 240 monthly instalments. Most professionals deem the loan tenor too long because, in a high inflation environment prevalent in most developing economies, it often breeds speculation in property as values escalate exponentially. A saner solution would have been a subsidised interest rate regime with a shorter loan repayment tenor of 12 to 15 years.
A consequence of the foregoing policies is that throughout its 63 years history, HBFC has only been able to finance 465,000 housing units (averaging 7,381 per annum)...barely 3.7% of the annual incremental demand of 200,000 units noted above and not even one percent of the existing overall housing deficit. Its line of credit from State Bank today stands at PKR 11.5 billion (that would today suffice to build only 15,000 low-cost shelters). But even this meagre amount appears non-repayable due to accumulated losses, untenably bloated operating costs and an unhealthy loan portfolio of which35% is non-performing.
Given the foregoing status, unless HBFC's mandate is radically redefined, fresh capital injected, adequate sources of enabling funding provided commensurate with needs (via subsidised SBP advances and legislated authorisation for issuance of tax exempt bonds), and professional management inducted (concurrently with a critical VSS to clear its Augean Stables of unproductive and overpaid legacy manpower), the Company's mission and status as a going concern is questionable.
Causes of housing policy failures Conceptual dissonance: One of the biggest hurdles in the path of a viable housing policy has been definitional. To date, no one has bothered to clearly spell out the meaning of Low Cost Housing (LCH) or Low Income Housing (LIH). When one talks of a long life capital good like a house, its acquisition presupposes that the potential acquirer can adduce evidence about his/her ability to make periodic payments over several years whether as rent or as mortgage instalment payments. A corporate executive earning a million Rupees a month may be able to afford a PKR 50 million house, comfortably paying monthly instalments of PKR 537,000 at a 10% commercial rate of interest for a 15 years mortgage.
On the other extreme, a minimum wage earner taking PKR 15,000 home each month may be hard-pressed to meet monthly rentals or mortgage instalment repayments larger than PKR 4,500. A simple NPV calculation demonstrates that a housing unit sold him on a 15 years mortgage at 10% commercial interest rate cannot be priced in excess of PKR 418,000 (or up to PKR 533,000 if funded at concessional financing at SBP's discount rate of 6%). This is the meaning of 'affordability'... what one can comfortably pay from one's regular income for housing. The internationally accepted norm for minimum wage earners is 30% of take home pay. Demanding rentals or mortgage instalment repayments larger than 30% of take home pay leads to hardship and eventual default.
Plight of the EWS: Depending upon whose statistics one accepts, the proportion of Pakistan's population below subsistence (USD 2 per day) is 25% to 40%. Even the lower figure suggests that 48 million citizens today cannot afford any kind of shelter at all. These recipients of Zakaat and BISP are deemed members of the so-called Economically Weak Segment (EWS) of society. They are the teeming bottom rung of the country's demand for Low Income Housing. Providing them adequate shelter will largely be an act of charity. At best, they can be asked to pay nominal rentals that suffice for maintenance of property in state-funded public housing projects (the policy currently adopted in Turkey). But, since they account for half of all slum dwellings in urban areas, moving them into serviced shelters will go a long way towards cleaning up our cities.
Distressed LIG: Next in line are minimum wage earners, both in private as well as public employment. In relevant literature, they are described as members of Low Income Group (LIG). As shown above, this group can only afford housing costing PKR 400,000-550,000. To date, most efforts at affordable housing have been geared towards constructing houses costing PKR 2.5 million or more. Again NPV calculation shows that mortgage finance for a PKR 2.5 million house along lines mentioned above would entail monthly instalments of PKR 27,000. An individual who can afford such an instalment will most likely have a monthly pay check of PKR 75,000 or more. In terms of affordability, these citizens would be categorised as members of Middle Income Group (MIG) living in 2-3 bedroom apartments or townhouses with covered areas of 1200-1500 square feet (5 to 7 Marla houses).
Multiple income households: Given our cultural norms, a significant proportion of our poor citizens live in extended families that contain two or even three earning members or the sole bread-winner may often be moonlighting in the evenings. Quite often, while the primary bread-winner has a regular job, his wife too earns from some trade or service in the community. While in their individual capacities these citizens would qualify as members of LIG, pooling their diverse incomes they could qualify for better housing. Our definition of Low Cost Housing (LCH) therefore must include housing needs of such families. In short, a LCH housing complex should encompass shelters costing between PKR 450,000 (300 Ft 2 Studio) to perhaps as much as PKR 1 million (a 675 Ft 2 two bed apartment whose monthly mortgage instalment could go as high as PKR 10,750). On the foregoing logic, shelters costing any more cannot be deemed LCH which only covers EWS, LIG, and Multiple Low Income Group (MLIG) described above.
Technological failure: Since all our technocrats and physical planners come from upper or affluent classes, they have little understanding or appreciation of poverty and problems of the poor. This needs a different breed of technocrats who empathise with and are aware of grassroots issues. The focus of all our architects, property developers, and civil engineers in the housing segment is upper middle class and the truly affluent. "There is no money in building for the poor", was how a leading architect in Karachi summed up this situation.
For the past 68 years, we have not researched alternative building systems. For instance, the baked 9" X 4" X 3" brick is an unchanged standard building block for all housing in Punjab while a larger sand-cement block serves the same purpose in Karachi. Both are highly unsuited to our hot climate that needs low density materials. Before being tiled, house roofs throughout the country are routinely covered by several inches of soil to serve as "thermal insulator". The affluent use expensive chemicals, such as "Jumbolon" (polypropylene sheet) that costs PKR 90 per square foot, for the same purpose. Throughout the developing world today, from Latin America to Far East Asia, there are scores of "cheap-housing" colonies that have used "foamed concrete bricks" which are 50% cheaper than our standard building materials. And to top it all, these bricks weigh a quarter as much and provide 6 times the insulation of our bricks. Furthermore, their jig-saw design allows for rapid shelter erection without use of mortar. This technological advance enables construction of a standard low-cost house in 3 weeks instead of more than 6 months that it now takes. It's worth investigating why NHA, HBFC, or the federal Ministry of Housing and Urban Development, have not bothered to promote such cost-saving technologies.
Construction/real estate mafia: Construction materials and building trades are a veritable Mafia that jealously guards its domain which is worth hundreds of billions of Rupees per annum. To cite a few examples, take the case of basic building materials. Current international price of cement hovers around USD 55/ton FOB Karachi. This is equivalent to PKR 118 per 20 kg bag. Indigenous cement factories charge hapless consumers PKR 520-550 per bag, ie, nearly five times the international price! Similarly, deformed steel bars (Sarya) used in construction of concrete columns, beams, floors and roofs is available at USD 325/ton FOB Karachi, ie, PKR 35,000 per ton. Domestic producers selling inferior grade rebars made from scrap price their product at PKR 90,000 per ton! Our standard baked brick (9" x 4" x 3") costs PKR 9/unit. Thus, its cubic foot cost is PKR 144 excluding the cost of sand/cement mortar used in the process. Matching volume of interlocking foamed concrete bricks would cost half as much while avoiding use of mortar. The tragedy is that successive Governments have always been beholden to these Mafias and shelter them against international competition for materials with high tariff barriers. The upshot of the foregoing state of affairs is that housing costs end up being 200% to 300% higher than they need be.
Building codes & red tapism: Authorship of our building codes dates back to the British Raj when the sub-continent's population was 10% of what it is today. Even at partition, the population of cities like Karachi and Lahore were under 250,000 each. Scarcity of land was not an issue. To preserve open spaces and greenery, strict limits were placed on maximum building heights and allowable built up areas. These Floor Area Ratios (FAR) and Floor Space Indices (FSI) are still in practice...especially in the housing sector. For instance, LDA and DHA still bar private housing taller than 25 to 35 feet. The consequence is that urban land prices are much higher than they logically ought to be. There is an urgent need to revise these outdated norms and expand our cities vertically, not horizontally. Here is a stark comparison. The island of Manhattan has a population density of 27,600/Km2, Lahore only 5,600/Km2. Were our building codes changed appropriately, we would have much more greenery, wider roads, and cheaper housing in the shape of high-rise apartment complexes.
The current procedure for acquiring a plot of land developed by a public and private agency is long and cumbersome. It involves considerable paper work and visits to banks and government offices for multiple approvals. These procedures and formalities deter intended beneficiaries while helping well-heeled property developers and speculators who, in cahoots with corrupt functionaries, seize the opportunity to front for multiple fake applicants. It is imperative that deserving applicants to all housing schemes have access to a one-window service staffed by helpful professionals.
Location: While developing housing policies for urban poor, no consideration was given to a key requirement of potential occupants...easy access to job opportunities. Whenever squatter settlements were bulldozed, the displaced were offered resettlement in periphery of cities far from job opportunities. So, over 50% of beneficiaries sold newly acquired housing units and went back to squat in city centers. Informed hindsight dictates that future LIHs (low income houses) be concentrated in the middle of urban centers...which is exactly where Katchi Abadis have sprouted!
Speculation: Whenever housing units given to the urban poor had drawn out repayment schedules or were partly subsidised, it led to speculation...owners selling their houses to speculators to meet more urgent existential needs. This was aggravated by lengthy construction lead times during which property price escalation further fuelled speculation. Once affordability drawbacks noted above are addressed, technology shortens construction lead times, and tenor of mortgages is appropriately reduced, this social ill is likely to diminish.
Lack of political will: Political institutions and government departments are wary of the poor organising themselves into pockets of resistance...which is what large Katchi Abadis have evolved into. Having failed to win popular support in this segment of society, politicians have little sympathy for shelter policies for the poor. Little wonder that these policies were usually half-hearted, half-baked, and hence destined to fail. More fundamentally, political manifestos have never translated into concrete legislative determinism. Globally, housing is a major platform for good governance. Most developed and even developing countries set aside significant portions (2% to 5%) of their budget for public housing. In Pakistan, even the federal Ministry of Housing and Urban Development has an undefined and undocumented budget (at least its website contains no reference to any annual monetary outlays)!
EXPERIENCE OF OTHER DEVELOPING COUNTRIES The need for low cost housing is universal. Of course, it is especially acute in developing countries whose population growth rates have put unsustainable pressure on infrastructure. Countries with large income disparities (high gini coefficients) also seem to have the most slums. In the last quarter of the 20th century and the first decade of the 21st, many developing countries have made serious efforts at cleaning up their urban slums by designing low-cost housing solutions for their poor.
Instead of listing scores of countries with their varied plans and achievements in the housing sector, the undersigned has chosen three instructive cases. The first, Malaysia, was a developing country 30 years ago and at that time faced the type of acute housing issues that confront us today. It is now a middle income country and is projected to rank with the developed world in the next couple of decades. It has conquered its housing problems and already cleaned up its urban slums.
The second, Turkey, exemplifies the fastest topographical change wrought by driven political leadership within a short span of 15 years. It is in the middle of a massive drive aimed at urban renewal. This makes it an international role model for developing countries seeking to clear urban slums by providing adequate housing to those most in need of it.
Finally, we look at our neighbour India. If anything, it has an urban slum issue worse than ours. However, its Modi government has recently announced a USD 2 trillion "Housing for All" project slated for completion by 2022. Given India's GDP of USD 2.2 trillion and tax revenue of 16%, even with 4% deficit spending laid on top, its gross expenditures cannot exceed USD 440 billion per year. Of this funding pool, to date, Indian Governments have never spent more than USD 5-6 billion on housing each year, ie, no more than 1-1.5% of gross expenditures. However, the country's private sector annual investment is 20 times that figure. Thus, annual housing investments are around USD 125 billion. For the Modi dream to become a reality, this overall expenditure has to rise 4-fold each year till 2022.It is hard to say if India will succeed. But, there are indications that it is launched on the right track and may yet succeed if the investment horizon is doubled to 2030.
(To be continued)