As far as political promises go, surely Imran Khan’s Naya Pakistan Housing Plan is neither original nor entirely fanciful considering housing is a globally acknowledged basic right. Admittedly though, since the dream sloganized by Zulfiqar Ali Bhutto remains a novel idea some 40 years later, the credit to resuscitate and repackage it is clever. But if one were to divulge into its technicalities, the plan seems to be overreaching its potential, not only because of the ambitious target but also because it is not really solving a problem.
Let’s look at data to gain some perspective. First of all, for low-income or developing economies where poverty levels are still significantly high, the proportion of household expenditure that is spent on food and sustenance alone is pretty high compared to developed economies. According to the Household Income and Expenditure Survey for 2015-16 of the PBS, 37 percent of the household expenditure in Pakistan goes into food and beverages (34% of household income).
Food expenditure is 45 percent of household income for the lowest income segment. For urban households, it is 29 percent; and 43 percent for the lowest income households. For rural households, it is 38 percent; and 46 percent for the lowest income households. Granted these numbers used to be much higher, but the improvement is not a lot because purchasing powers have simply not grown. Compare this to India’s food expenditure at 31 percent of household incomes and Nigeria’s 57 percent, America’s 7 percent, and Canada’s 9.2 percent. The relation between income levels and food share in expenditure is quite evident.
Second: consider that housing affordability is defined as a monthly payment equaling 30 percent of the household income. Clearly, if half the income is going into food and clothing for the lowest income segments (see table), there is very little space left for a household to squeeze 30 percent of the income for mortgage payment (notice how huge the share of housing, water, electricity and gas already is). This is contingent on the understanding that the housing plan will provide a mortgage financing facility that would make monthly payments affordable (it doesn’t).
Since nearly 70 percent of the current housing shortage is in low-income households, how the government plans to fill this demand gap is a question with no answer. There is no direct subsidy offered under NPHP. Mortgage at current interest rates is going to be huge. Mortgage subsidy that was being offered by the SBP low income policy initiative was retracted. That product, though decent, was not affordable for households earning less than Rs40,000 per month (given property price of Rs1 million).
In fact, the only subsidized financing facility now available is that offered by some banks and the House Building Finance Corporation (HBFC) to be refinanced by Pakistan Mortgage Refinance Company (PMRC) which is itself receiving funding from the World Bank of $140 million. If an average house will cost Rs1 million, this facility will cover 20,000 mortgages (for details: “Naya Pakistan Housing: out of reach, out of touch”, June 28, 2019). The current agreements signed by PMRC with banks cover 2200 loans. But even this product is not affordable for households earning less than Rs34,000 per month (given property price of Rs1 million).
Low-income housing is defined by SBP as a property priced below Rs3 million, though to make the PMRC product affordable, the cost of the house will have to be brought down to Rs500,000; which seems impossible given the average cost of construction and land prices in Pakistan.
It is clear that this program is not for households at the bottom, perhaps those earning minimum wage, lower or even a few ten thousands higher; those currently living in shanty informal settlements, kacchi abaadis or even perhaps those that the encroachment drives across the country have driven out. Let’s also not forget that 24 percent of the Pakistani population lives below the national poverty line (2015). That is barely Rs20,000 per month. Nearly one-fourth of the population earns below that!
One could argue that once the mortgage market flourishes and more houses are constructed under the program, property prices may come down. Some housing gaps in the middle income can be filled. The World Bank funding will help dole out loans which will facilitate more loans once repayments start to roll in. Though it is all stretching a bit too thin for comfort. Perhaps, it is for this reason that Imran Khan’s plan never claims to address the housing shortage for low-income households. Realistically, that is not a promise he can keep anyway.
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