Houseful

If subsequent governments in Pakistan have displayed an overwhelming obsession with building roads and bridges, Imran Khan is also leaving no stone unturned to show his own commitment to the brick and mortar of the country. His baby however, is the ambitious plan to construct five million houses. Khan is being advised by foreign developer friends while the committee formed under Secretary Housing and Works is ordered to formulate a working plan in the next two weeks (read “Playing house”, Sep 5, 2018). It’s all great news, but the planning team has to be mindful of two major caveats: one, that merely building houses will not be enough and in fact, would cause further disruption to the overloaded system; and two, that the government should not be in the business of constructing houses.

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The government owns the land, so it can give the land for free, or provide subsidized lands to developers or even consumers directly, but the cost of construction will have to be financed elsewhere—surely, the government cannot use its limited wallet to dole out Rs2-3 trillion each year to construct the supposed one million houses (supposing, the cost of construction of an average 1000 sq. ft. house is Rs2- 3 million). Nearly all the plans by the government have to do with overhauling the regulatory and legal frameworks as well as facilitating an environment that would be attractive for investors, businesses, private sector, and financial institutions to bring market solutions to the fore.

On the regulatory side, reforms to eliminate land titling and registration issues are key that have historically led to land disputes. Lack of clean titles are a major red flag for financiers who do not want to take the same property on which construction is happening as mortgage. Sindh and Punjab provincial governments have done some homework to computerize land records and ownership but these programs are not fully executed. On the legal side, guaranteed enforcement of contracts via strong foreclosure and property valuation laws are necessary.

The other issue of land is land underutilization and wastage. Density laws and building codes are weak that allow land to be auctioned to developers who are keen on constructing gated communities with low densities. Land available for low to middle income households is not enough as a result; some areas are spread out housing less people, while other areas are vertical and extremely congested. It is no secret that nearly half the urban population are squatters; unhouses and living in slums.

Land is a scarce resource, but its usage is inefficient also in part because land owning authorities do not have any restrictions on builders and developers to actually implement their development plans. Swathes of plots across Karachi are just laying idle, exchanging hands causing prices to escalate. Land owning authorities which are essentially regulators need a shake-up to do their jobs better—this means, fining hefty and substantive fees for unutilized land, auctioning based on stipulated project timelines which if not following would result in land taken back and re-auctioned. Builders should also be restricted from buying beyond a certain number of plots and be subject to updated density laws favouring vertical development in the high-income areas. Between themselves, they need better coordination, and bring down cost for investors through streamlined and speedy processes.

Market solutions will come when the regulatory and legal framework are intact. In fact, commercial banks and financial institutions will also be less hesitant to turn down mortgage loans if these hurdles are addressed. Not only home loans, small scale builders could also be mobilized through construction loans when currently they construct using customer advances and investor cash where these investors take a cut.

The projects just have to be commercially viable all around. The success stories of the Khuda ki Basti projects by Siaban and the expansion of the cross-subsidy model can be learnt from. Builders can come together with organizations that have experience in the field. The government can give incentives to builders and developers through land allocation and subsidies to develop low-cost housing with proper restrictions in place so these incentives are not misused. Other institutions can serve as guarantors for financial institutions in giving mortgages to supply to the uncollaterized market. This has already been done by the Saiban-Acumen dream team for Khuda ki Basti-4.

Moreover, to the first caveat mentioned earlier, there would be no point to constructing houses in outskirt lands if people have to live in the same way as they lived in slums—without electricity, water, and physical infrastructure. Gated communities and large scale projects are not all menaces—the government just have to pivot them toward catering to the low-to-middle income markets which remain untapped. The challenge in essence is not building houses as much as it is building cities and managing city development most efficiently to optimize the use of scarce resources, and bridge the gap that is swelling between the under and over privileged.