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Employment Generation through Housing Industry in Pakistan

Dec 7, 2018
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Tags :
  • Access to Finance,
  • Employment,
  • Housing,
  • How the housing industry can foster employment generation

    Pakistan’s rising housing shortage is alarming. The gap has been widening due to population growth and an emerging trend in rural to urban migration. Together these factors have made the existing housing supply insufficient. But not only that, the current housing supply is also unaffordable. Little to no options for low-income housing exist. The country has a room density of 3.5 persons per room which is significantly higher than the developed world standard of 1.1 person per room. The persistent backlog of housing supply together with the increase in gap each year puts the total shortage at 10-12 million units, though this seems to be an outdated figure.[1] Nearly half of Pakistani urban dwellers live in informal settlements, or kacchi abaadis(8 million in Karachi; 1.7 million in Lahore); against India’s 24 percent of the urban population. Couple that with nearly three-fifths of the population still in the rural and underdeveloped areas, the need for low-cost housing is dire.

    The problem is recognized by successive governments as Pakistan People’sParty (PPP)during its tenure in 2008-13promised to construct a million houses per year while the Pakistan Muslim League- Nawaz (PML-N) government during 2013-18 charted down plans of building 0.5 million units per year. Virtually none of these plans panned out. In recent history, there is no example of a successful housing scheme launched by the governments, while the regulatory and financing frameworks remain weak and inadequate. Promises however, still prevail. The new government formed by Pakistan TehreekInsaaf (PTI) has now come with a housing targetto make 5 million houses in five years as part of its economic reform agenda.

    Weak regulatory environment poses a big challenge

    The government’s job should not be to construct houses, but to create an enabling regulatory environment that would encourage and incentivize the private sector to meet the growing demand in all income-segments, not just the affluent one. Pakistan could look toward Modi’s “Housing for All” initiative in India which targets building 20 million housing units each year to cater to the low-income segment that forms over 60 percent of the demand. Thatmarket has been developed over the last decade and the latest housing sector regulations introduced by the Indian government are harnessing efforts from private developers to introduce schemes that are catered toward the low-income segment.

    Pakistan is faced with a number of challenges. The incidence of bank financing is l.ow for bothmortgage and builder finance, in part due to the weak regulatory structure and banks’ low confidence in the real estatethat is a magnet to illicit wealth. The unclarity of titles exacerbated by property exchanging hands many times over leads to speculative price hikes causing commercial lenders to distance themselves from this sector.The government owns huge parcelsof land in Pakistan and auctions these off to builders and developers. This land is bought and sold in secondary market but construction often never begins, projects are delayed and land prices keep on increasing.

    This speculative interest in the real estate sector must be curbed to restrain prices from skyrocketing. To do so, builders should be requiredto develop the land in a stipulated time frame and not be allowed to sell un-developed land. In case of housing in new localities, it is recommended that part of the development should consist of low cost units which should be developed earlier and sold at low pricesto accommodate the low-income segment. Streamlining land registration databases to bring clarity to titles, updating building codes and density laws in favor of vertical development, strengthening foreclosure laws, and ensuring that only registered and authentic builders are allowed to undertake construction.

    The sector needs to build credibility from the ground up which will persuade banks to be more open to lending in this sector and in turn solving the key issue of financing for home buyers and builders. To that end, the SBP has recently launched a policy document to promote low-income housing finance in Pakistan, which proposes public-private models that could work if executed well.

    Importance of housing beyond addressing the shortage

    Bridging the housing gap is not only important for providing formal living means for the growing population but also because adding to the housing stock creates opportunities for a plethora of SME segments which are directly and indirectly associated with the housing industry.

    Construction is one of the most labour intensive industries in Pakistan—its contribution to labor force (7.3%) is more than double its contribution to GDP (2.7%)[1]. Within the industry, housing is deemed to be more labour intensive, especially in urban areas. Thus, a boost in the housing industry will go a long way in generating urban employment.

    The real estate industry has more than 250 associated industries with 40–50 construction allied industries, including, aside from larger cement and steel industries, a host of SMEs[2]. The industry has a significant impact on the economy and on employment. According to a 2008 World Bank study, “a unit increase in expenditure in construction sector has a multiplier effect and the capacity to generate income as great as five times the cost of the unit”.[3]

    The former Chairman of Association of Builders and Developers (ABAD), Akber Sheikh in an interview claimed that constructing 100,000 more houses every year would generate one million jobs. While this number may be overstated, a study on enhancing builder finance in Pakistan conducted by Karandaaz Pakistan finds that the construction ofthe same number of3-marla houses per year in Lahore would create nearly 150,000 rolling jobs. These employment numbers will be 200,000 and 380,000 for 5 and 10 marla houses, respectively. A mix of 100,000 houses of these different sizes can create up to 250,000 jobs a year in Lahore only. In Karachi, about 360,000 laborers are put to work when 100,000 apartments are constructed in a year. These estimate come from existing constructionactivity in the two cities.

    These calculations suggest the housing gap will generate additional employment for thousands of laborers, contractors, architects, builders and agents etc. But it is also clear that this cannot be done without a robust regulatory environment, market-based solutions with public sector involvementand housing finance in place.

    [1]The State Bank of Pakistan (SBP). Annual Report 2016–17

    [2]Bricks, timber and wood, marbles, tiles and marbles, electrical and sanitary works, glass, paints and varnishes, electrical lightning, power and gas, horticulture, interior decoration, transport, light-heavy construction machinery, plastics, fibers, furniture, electrical appliances, etc

    [3]The World Bank. Ninova, Tatiana. Pg 1, Expanding Housing Finance to the Underserved in South Asia. (2010). Washington DC

    [4]The World Bank. Project Information Document. Pakistan Housing Finance Project (Dec 2017)

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