In November 2022, Karandaaz Pakistan held a webinar to launch its latest study on the potential of climate-smart, affordable housing in Pakistan. Industry leaders and other key stakeholders came together to discuss the housing needs in Pakistan and the impact green initiatives can have in meeting the needs of low-income groups who are most vulnerable to the impact of climate change.

Here are the five key takeaways which came out of the discussions:

1. More needs to be done to incentivise developers to in Pakistan to build green

Currently there are no real incentives (or disincentives!) to encourage housing developers in Pakistan to build green. There are currently no carbon limits on industry, so there is no compulsion placed on the housing construction, manufacturing or production industries to curb the usage of resource-intensive materials or manufacturing techniques. Meanwhile, there are no financial incentives such as tax breaks for low carbon products for industries catering to domestic consumers.  As a result, the industries involved in the housing sector are not incentivised to produce or use green products, leaving climate smart housing developers few indigenous products or materials to use. Therefore, increased investment in the production of indigenous climate smart alternatives and innovations that can be used in the housing and construction sector can help to plug this gap. Products such as high-performance insulation, low-impact cement, and fly ash bricks can be manufactured indigenously to cut costs in climate-smart housing.

In addition, targeted government policies could help to incentivise developers to introduce climate-smart building. In other markets, it has been found that fast-tracking approval processes for climate-smart housing can encourage developers to move into the space. As such, Pakistan could increase activity in the sector through measures such as facilitating no-objection certificates (NOCs) and other approvals  though a single window system to fast track the activity of climate-smart developers.

2. Financing is a critical gap

A key challenge to developing the climate-smart, low-cost housing value chain is a lack of financing, both in terms of construction finance as well as financing for end users. Pakistan’s mortgage finance to Gross Domestic Product ratio of 0.25% is extremely low compared to South Asia’s average of 3.4%. Moreover, private sector credit availability for low-income housing is constrained as most formal banks remain highly conservative in regard to their creditworthiness assessments of potential borrowers. This leaves those working in the informal sector who lack the required documentation unable to access financing for affordable housing, let alone housing that is climate-smart.

There is also a gap in terms of finance available for green construction. Globally, much needs to be done to elevate green finance. Currently, only 4.6% of emerging debt instruments are green in the global market.  Despite this, the appetite for sustainable financing and impact investing is rising rapidly. Green bonds have been found to be effective debt instruments to raise financing for projects. Typically, they tend to be asset backed (for example through residential or commercial buildings) and are rated by a third party. In the Asia Pacific Region, the bond market is growing in the South Asia region accounting for 23% of the global issuance. Energy and buildings segment account for a major chunk of the total green investment in the region. As such, there are significant opportunities for Pakistan to tap into the increased prospects for green finance within the construction sector.

3. Customers are price sensitive and more needs to be done to promote the benefits of green building

Developers working in the space have reported that on the whole, there is limited knowledge among customers of the range of benefits of climate-smart housing. As a result, demand for these technologies is often limited and customers are more price sensitive than climate sensitive. Due to this, developers have needed to create additional unique selling points to market their homes with (such as quick build time, unskilled assembly, low electricity bills, etc.) while remaining cognizant of the cost being passed to the customer. Meanwhile, there are significant long term benefits of climate smart housing which can reduce costs for consumers over time, even if the upfront cost is slightly higher.

Ensuring that customers are aware of these benefits through additional research and improved marketing of climate smart housing would help to increase demand, and encourage greater investment in the space.

4. Efforts need to be made to increase knowledge of climate-smart housing among key stakeholders

Knowledge gaps and the lack of technical expertise persist across the public sector and government units, as well as within the private sector. The concept of climate-smart housing is relatively unheard of among city planning and development authorities, and the capacity needed to evaluate climate-smart housing projects has not yet been built. Currently, authorities’ ability to evaluate building design is limited to basic zoning requirements. In addition, there is a lack of clarity between provincial bodies on roles and responsibilities in regulatory structures. This lack of clarity, along with deficiencies in technical capacities, has resulted in the neglect of green construction codes for residential homes and gaps in the ‘green’ regulation of buildings.

Nevertheless, some progress has been made in recent years, including the development in June 2021 of Green Building Guidelines for the Five Million Naya Pakistan Housing Program. It is important that we maintain this momentum to improve knowledge and increase capacity for green building among key stakeholders in the construction sector as well as in government to promote the scale up of green building techniques across the sector.

5. We now have a significant opportunity to build back better after the flooding

Aside from the shortage of affordable housing in Pakistan, low-income households often experience heightened vulnerability to climate change-related events. Even otherwise durable, standard-constructed homes in Pakistan offer little resistance to increased heat, seismic activity, air pollution, or flooding, which, in turn, has a negative impact on health and wellbeing. With the ever-increasing frequency of severe climate-related events (as demonstrated by the 2022 flooding), changing crop patterns, depleting energy resources, and a population growth rate that far outpaces the provision of housing, the advent of climate-change urges the development of affordable and climate-smart housing that offers strengthened resilience against climate risks, lowers GHG emissions and allow for energy and water consumption efficiency.

Arif Hasan, one of Pakistan’s most reputable architects and urban planners, who delivered the keynote address during the webinar stated that:

Moving forward, the central ambition must be to build back better so that the outcome of the reconstruction is not just a replacement of what the floods have washed away, but that every opportunity is taken to improve upon and make good the deficiencies that existed before the disaster.