affordable housing solution for common people

1. Affordable & Pro-Poor Housing.
Imperative For Pakistan’s Progress
A Presentation at SBP by;
M. Abrar Ameen
March 25th, 2013.

2. Dedication
• This presentation is dedicated to Dr. Parveen
Rehman, the Director of Orangi Project, who
selflessly served the poor; but was murdered
two weeks back by forces opposed to, and
threatened by the idea of a Progressive
Pakistan.

3. Preamble
• 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 pressure on the
already crumbling social safety net, that Pakistan has,
largely in the shape of family (not governmental)
support.

4. Introspection
• Is housing a basic need, a right, an entitlement, a public
good, or even, as in the case of home purchasing, a civic
necessity ?
• Or is it just another 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)."

5. Context of Presentation
• 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.

6. Context Of Presentation-II
• 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 out programmes for 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.

7. Context of Presentation-III
• 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 by Mr.Zaigham
Rizvi, some time ago, Pro Poor Housing is an
Idea, whose Time Has Come.

8. The Issues
• 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 many urban planners to have negative
effects on a community's overall health.

9. The Issues - II
• 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 cost increases have been
linked to declines in enrollment at local
schools.

10. The Issues, & Effects
• 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.

11. The Issues, Causes & Effects
• In a depressed or sparsely settled rural area,
for example, the predicted price of the
median two-bedroom apartment may be
quite easily affordable even to a minimum-
wage worker – if only any apartments had
ever been built

12. The Issues, Causes & Effects-II
• 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.

13. The Issues, Causes & Effects-III
• 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.

14. Issues, Causes & Effects-IV
• 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 and nurses, who are unable 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

15. Issues, Causes & Effects-V
• 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.

16. The Issues, Causes & Effects-VI
• 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.

17. The Pakistani Problem
• 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 30-40 percent of 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.

18. The Pakistani Problem-II
• The government has made repeated attempts to
address this segment through various initiatives –
seldom succeeding.
• The current low income housing deficit within
Pakistan is 3 million units with an addition of 150,000
units per annum.In addition to these alarming rates,
within the urban context, there is a disturbing
pattern.

19. The Pakistani Problem-III
• 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.
• With most homes having been constructed over
twenty years ago (58 percent), over 50 percent of
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.

20. The Pakistani Problem-IV
• 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
earning between Rs: 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.

21. The Pakistani Problem-V
• 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.
• For those living in rental units (30 percent of the
population), their average monthly income is Rs:
16500 (US$ 165) and their monthly saving, after
all expenses relating to rent, food, utilities,
transportation and miscellaneous are deducted,
under ideal circumstances, is Rs: 1500 (US$ 15).

22. The Pakistani Problem- VI
• With the average person saving Rs: 1500 (US$
15/month) and the average 80 square yard
plot costing Rs: 700,000 (US$ 7,000), it would
take nearly forty years before one could afford
such a plot.The result, is the current housing
crisis Pakistan is faced with.

23. The Impact of Non-Affordability
• Lack of affordable housing places a particular burden
on local economies.
• Individual consumers 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.

24. Solutions
• Affordable housing needs can be addressed
through public policy instruments focussed
towards the demand side of the market where
households are assisted in reaching financial
benchmarks without which housing is not
affordable.

25. Solutions-II
• 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.

26. Solutions-III
• 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.

27. Solutions-IV
• 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.

28. Solutions-V
• 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.

29. Solutions-VI
• Currently some of the policies that facilitate
production on the supply side include
favorable land use policies such as
inclusionary zoning, relaxation of
environmental regulations, and the
enforcement of affordable housing quotas in
new developments.

30. Solutions-VII
• Zoning is 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

31. Solutions-VIII
• 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.
• In response 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.

32. Solutions-IX
• 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.

33. Solutions-X
• In India, it is estimated that approximately
32% of the population was living below the
poverty line, and there was a huge demand for
affordable housing. Some developers are
developing low cost and affordable housing
for this population.

34. Solutions-XI
• The Government of India has taken up various
initiatives for developing properties in low
cost and affordable segment. They have also
looked at PPP (not the Pakistan People’s Party !, but
Public-Private Partnership) model for development
of these properties.

35. Other Solutions
• Green Housing
• In India, The Non-Bank Financial Institution Housing
Finance team completed a Report 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.

36. Other Solutions-II
• Mortgage Covered Bond
• Mortgage 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. The mortgage covered bond projects
in Morocco, Brazil, Central Europe and Central
Asia have done very well.

37. Other Solutions-III
• Rental Housing
• The 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. The rental housing projects have
been functioning successfully, in Haiti, India,
Mexico, Eastern Europe and Central Asia.

38. Other Solutions- IV
• Mortgage Subsidies for Middle- and Low-Income
Population (as in Egypt):
• A loan of US$300 million has been granted to the Arab
Republic of Egypt to develop an Affordable Mortgage
Finance Program.With strong 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.

39. Other Solutions-V
• 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 Housing Sukuk, 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 )
• Involving Microfinance & SME Banks to provide funding to Low
Income borrowers, by releasing Targeted Funding through State
Bank.

40. • Thank You Very Much.