Affordable & Pro-Poor Housing.Imperative For Pakistan’s Progress
A Presentation at SBP by;M.AbrarAmeenMarch 25th, 2013.
This presentation is dedicated to Dr.ParveenRehman, the Director ofOrangiProject, who selflessly served the poor; but was murdered two weeks back by forces opposed to, and threatened by the idea of a Progressive Pakistan.
The housing shortfall in Pakistan has assumed alarming proportions. But the sector that has remained largely ignored by all commercial banks, and most of DFIs is the low income segment.Owning a house not only brings stability to the lives of people, but is the most prominent source of creation of national wealth. We need to adopt radical, out of the box solutions to address this issue, which, if left unattended, would result in a severe pressureonthe already crumbling social safety net, that Pakistan has, largely in the shape of family (not governmental) support.
Is housing a basic need, a right,an entitlement, a public good, or even, as in the case of homepurchasing,a civicnecessity ?Orisit justanother household-level consumer choice, a commodity or an investment within the free market system?"Housing Policies provide a remarkable litmus test for the values of politicians at every level of office and of the varied communities that influence them. Often this test measures simply the warmth or coldness of heart of the more affluent and secure towards families of a lower socio-economic status(John C.Bacher–Keeping To The Marketplace: The Evolution of Canadian Housing Policy-1993)."
We have been talking about the issues for a very long time, with little headway in coming up with practical solutions.Where solutions have been proposed, or presented, their adoption has been hampered by either a lack of will, or lack of interest by the banking community.Housing has been relegated to the bottom of the pyramid of products, as banks, and their Managements have become comfortable with, and set their hearts on investing in Government paper for quick and steady returns.
The problem is not insolvable, only the route to the solution requires the will to take the first steps.Countries like India, China, Egypt, Indonesia, and others had long resolved to address the issue of provision of low cost housing for low income, and poor segment of their populations.They had rolled outprogrammesfor massive increases in the housing stock, with Public-Private partnership, with the result that they now have large communities living in these low cost houses.
This presentation analyses the issues, looks at the impediments – some of which we have not addressed out of sheer apathy, and then proposes the solutions to address this festering problem, that has remained on the back burner for too long.In the words of a Paper written byMr.ZaighamRizvi, some time ago, Pro Poor Housing is an Idea, whose Time Has Come.
Housing affordability is more than just a personal trouble experienced by individual households who cannot easily find a place to live. Lack of affordable housing is considered by manyurban plannersto have negative effects on a community's overallhealth.
Lack of affordable housing can make low-cost labor more scarce, and increase demands on transportation systems (as workers travel longer distances between jobs and affordable housing). Housing costincreaseshave been linked to declines in enrollment at local schools.
A well located dwelling might save significant household travel costs and therefore improve overall family economics, even if the rent is higher than a dwelling in a poorer location.A household's inhabitants must decide whether to pay more for housing to keep commuting time and expense low, or to accept a long and/or expensive commute in order to obtain "better" housing.
In a depressed or sparsely settled rural area, for example, the predicted price of themedian two-bedroom apartment may be quite easily affordable even to a minimum-wage worker – if only any apartments had ever been built
The availability of affordable housing in proximity of mass transit and linked to job distribution, has become severely imbalanced in this period of rapid regional urbanization and growing density convergence.
In addition to the distress it causes families who cannot find a place to live, lack of affordable housing is considered by many urban planners to have negative effects on a community's overall health.
Affordable housing challenges in inner cities range from the homeless who are forced to live on the street, to the relative deprivation of vital workers like police officers, firefighters, teachers andnurses, who areunable to find affordable accommodation near their place of work. These workers are forced to live in suburbia commuting up to two hours each way to work
The market has been unable to meet the growing demand to supply housing stock at affordable prices. Although demand for affordable housing, particularly rental housing that is affordable for low and middle income earners, has increased, the supply has not.
The growing gap between rich and poor since the 1980s manifests itself in a housing system where public policy decisions privilege the ownership sector to the disadvantage of the rental sector.
Currently, Pakistan has an overall housing backlog exceeding 6 million units with an annual addition of 300,000 units – based upon conservative estimates from the Population Census of 1998 and the National Housing Policy of 2001. Roughly 30-40percentof the demand is addressed by mainstream developers who cater to the high-end market. The remaining units fall under the category of the low-income segment.
The government has made repeated attempts to address this segment through various initiatives – seldom succeeding.Thecurrentlow income housingdeficit within Pakistan is 3 million units with an addition of 150,000 units perannum.Inaddition to these alarming rates, within the urban context, there is a disturbing pattern.
Of those that do own homes, there is a clear pattern of constructing additional rooms as opposed to constructing new homes. This leads to an increase in the density of homes, thus further exacerbating the housing problem.Withmost homes having been constructed over twenty years ago (58percent), over 50percentof the population under the age of 25 , and no solutions in sight, demand in the lower income segments is expected to explode in the next decade.
In order to truly comprehend this problem, one must put him/herself in the shoes (or bare-soles) of the average citizen of Pakistan. An individual is earningbetweenRs: 13500 to 18500(US$135-185) per month(working in the public/private sector or self-employed) and is responsible for maintaining his/her nuclear family as well as members of the extended family.
The average citizen lives with a level of uncertainty on a daily basis, and is constantly faced with a multitude of potential issues to handle relating to running of his/her household and providing for the family.Forthose living in rental units (30percentof the population), their average monthly income isRs: 16500 (US$165)and their monthly saving, after all expenses relating to rent, food, utilities, transportation and miscellaneous are deducted, under ideal circumstances, isRs: 1500 (US$15).
With the average person savingRs: 1500 (US$15/month)and the average 80 square yard plot costingRs: 700,000 (US$7,000),it would take nearly forty years before one could afford such aplot.Theresult, is the current housing crisis Pakistan is faced with.
Lack of affordable housing places a particular burden on local economies.Individualconsumers are faced with mortgage arrears and excessive debt and therefore cut back on consumption. A combination of high housing costs and high debt levels contributes to a reduction in savings.These factors can lead to decreased investment in sectors that are essential to the long-term growth of the economy.
Affordable housing needs can be addressed through public policy instrumentsfocussedtowards the demand side of the market where households are assisted in reaching financial benchmarks without which housing is not affordable.
This can include approaches that simply promote economic growth in general, in the hope that a stronger economy, higher employment rates and higher wages will increase the ability of households to acquire housing at market prices.
Federal government policies define banking and mortgage lending practices, tax and regulatory measures affecting building materials, professional practices (ex. real estate transactions).The purchasing power of individual households can be enhanced through tax and fiscal policies that result in reducing the cost of mortgages and the cost of borrowing.
Public policies may include the implementation of subsidy programs and incentive patterns for average households.For the most vulnerable groups, such as seniors, single-parent families, the disabled, etc. some form of publicly funded allowance strategy can be implemented providing individual households with adequate income to afford housing.
Or policy instruments may focus on production strategies which facilitate increased production on the supply side of affordable housing which can include refurbished older stock and/or the construction of new housing units.Several unfinished apartments blocks in Karachi invite our attention in this regard.
Currently some of the policies that facilitate production on the supply side include favorable land use policies such as inclusionaryzoning, relaxation of environmental regulations, and the enforcement of affordable housing quotas in new developments.
Zoningis a device of land-use planning used by local governments in most developed countries. The word is derived from the practice of designating permitted uses of land based on mapped zones which separate one set of land uses from another.Zoning may be use-based (regulating the uses to which land may be put), or it may regulate building height, lot coverage, and similar characteristics, or some combination of these
Challenges in providing affordable housing in China through the free market system are similar to difficulties in many Western countries. Potential purchasers lack wealth to purchase dwelling units and lack income to make regular mortgage payments.Inresponse China introduced the Housing Provident Fund (HPF) program nationwide in 1995. It is similar to housing fund programs in other countries such as Thailand and Singapore.
The Housing Provident Fund (HPF), provides a mechanism allowing potential purchasers who have an income to save for and eventually purchase a unit dwelling (which may be a formerly public housing unit). The HPF includes a subsidized savings program linked to a retirement account, subsidized mortgage rates and price discounts.
InIndia, it is estimated thatapproximately32% of the population was living below the povertyline,and therewas a hugedemand for affordable housing. Some developers are developinglow cost andaffordable housingfor this population.
The Government of India has taken up various initiatives for developing properties in low cost and affordable segment. They have also looked atPPP (not the Pakistan People’s Party !, but Public-Private Partnership)model for development of these properties.
Green HousingIn India, TheNon-Bank Financial Institution Housing Finance team completed aReport on Low Cost Green Housing in 2012.This report identified green technologies and materials suitable for lower income households, the largest segment of the country’s current and future market demand. The first study of its kind in India was implemented jointly with the IFC.The same methodology can be adopted in Pakistan.
Mortgage Covered BondMortgage funding sources are critical for sustainable market development. One of the key funding mechanisms - Mortgage Covered Bonds - has a long history in Europe and Latin America. Themortgagecovered bond projects in Morocco, Brazil, Central Europe and CentralAsia have done very well.
Rental HousingThe World Bank is now assisting countries that would like to bring rental housing to the forefront of the housing agenda and to provide guidance for policy makers whose actions can have an effect on where and how people live. Therentalhousing projectshave been functioning successfully, inHaiti, India, Mexico, Eastern Europe and Central Asia.
MortgageSubsidies for Middle- and Low-IncomePopulation (asinEgypt):A loan of US$300 million has been granted to the Arab Republic of Egypt to develop an Affordable Mortgage FinanceProgram.Withstrong partnerships established between the World Bank and the Egyptian authorities, the program aims to achieve the objectives to create a transparent and economically efficient subsidy for the broad low- and middle-income market and a credible legal and regulatory framework for the mortgage finance market.If the will to emulate such models is there, we can explore similar programmes for Pakistan.
Tri-Partite Model of Developer Finance.Changes in the law to allow Banks to hold Consumer Housing Assets on their books.Changes in the laws to allow Consortium Financing for large-scale Residential Compounds on State released land at Provincial Level.Issuance of HousingSukuk, with participation by owners of houses of large scale housing projects financed under Islamic Banking.Introduction of New Construction Technologies at Duty Free Import basis ( as done in Indonesia )InvolvingMicrofinance & SMEBanks to provide funding to Low Income borrowers, by releasing Targeted Funding through State Bank.
Thank You Very Much.