Provision of shelter is one of the basic human rights of every citizen. Currently, there is a shortage of at least 1.2 million housing units in Pakistan.
If one takes into account adequate housing properties, (adequate privacy, space, security, minimum threat of roof collapse, electrocution along with proper ventilation and lighting), Pakistan has a shortage of at least 10 million units.
The current population of Pakistan is approximately 220 million and is growing at a rate of 2 percent per annum. This demographic trend is putting further pressure on the demand of housing supply. In Pakistan, ethnic tensions, topography and infrastructure render large swaths of Khyber Pakhtunkhwa and Balochistan unfit for large-scale housing projects.
In Punjab and Sindh, 64 percent of rural land is held by just 5 percent of land-owners who use their land as political capital and indulge in feudal practices. This composition of rural land ownership renders development of adequate housing in peripheral areas an uphill task; even in areas which do not have much agricultural potential e.g. Chakwal and Chakri districts along the M2 Motorway.
The economy of Pakistan is concentrated in a handful of urban centers, which attracts both low-skilled and skilled immigrants. This phenomenon creates islands of high population density and these immigrants usually have to bear with inadequate housing units.
Local development authorities of respective administrative divisions of Pakistan have failed for the last few decades to increase the supply of adequate housing.
The supply side of housing infrastructure is currently being dominated by the private and semi-autonomous concerns. The bulk of projects being undertaken by these non-governmental bodies are in the respective administrative capitals and a handful of industrial cities of Pakistan. The clientele for whom this housing supply is tailored are individuals belonging to the middle and upper-middle class.
Unfortunately, adequate housing is fast becoming a dream for a large proportion of the educated middle-class – the hard-working engineers, doctors, sociologists, philosophers, writers etc. We, as a country, are de-incentivising education, hard work, creativity, manufacturing, honesty, and instead, encouraging opaque markets, speculation, imports, hoarding, tax evasion and pursuit of unequal opportunities.
Since 2019, residential and commercial plots of land in upscale localities of urban centers have witnessed more than 100 percent increase in prices. Before exponentially rising in 2020, the prices remained stagnant between 2016 and 2019. In 2016, the per capita household income in Pakistan was USD 650.644 and it decreased to USD 508.977 in 2019. Between 2016 and 2018 when real estate prices were stagnant, the GDP grew at an average of 5 percent per annum. However between 2019 and first quarter of 2022 when real estate markets sky rocketed, GDP only grew by mere 1.83 percent on average. Neither rising incomes nor an increasing in the size of the economic pie explain the exponential rise in real estate prices.
When real estate prices began to shoot upwards in 2019, PKR to USD exchange rate was 174 to 1 and by the time the market reached peak prices by May 2022, the exchange rate hovered around 1 USD to 210 PKR approximately. The price of land increased at a greater rate than the rate of devaluation of the rupee. The prices of real estate since May 2022 have declined when denominated in rupee even though the dollar reached the 245 mark. The exchange rate volatility also does not explain the price hike of the last three years.
The money in circulation in Pakistan increased from approximately 4.5 trillion between 2018 to approximately 10 trillion by March – April 2022; when real estate prices peaked and since then, the money in circulation has decreased and so have real estate prices. In Pakistan, the money supply and real estate prices have been found to be directly proportionate over the last three years.
The increase in liquidity during a period of worsening balance of trade statistics, almost stagnant manufacturing output, a GDP increase of approximately 1.9 percent, stagnant purchasing power and increasing real estate prices, point to the fact that only a specific socio-economic demographic benefited from the real estate boom; at the cost of many others. There was no trickle-down effect, instead the money flowed from the bottom to the top.
Pakistan does not have a history of progressive property taxation and has minimal inheritance tax; facilitating an inherited plutocracy and hoarding property beyond one’s adequate needs; without any additional cost.
As a result, a minority controls a major chunk of real estate assets. The democratic principle of safeguarding the interests of minority against those of the majority does not come to the aid of the landless majority as property being a basic right cannot be snatched from the person who owns it.
However, the mode of acquisition of property and laws governing incremental increases in ownership of property should be drafted in a manner that enables land ownership to become a medium that increases equality instead of inequality.
With a rising population of which youth demographic comprises a large ratio, demand for adequate housing will increase significantly in the next two decades.
In a macroeconomic environment where public investment for upliftment of our youth is negligible, access to economic opportunities for acquisition of property and maintenance, let alone improvement of living standards compared to those of one’s parents is becoming increasingly difficult. Compound this variable with the fact that this structurally disadvantaged youth bulge has to compete with each other to negotiate real estate prices with a landed minority.
This dynamic puts the landed minority in a sweet spot from where it can command all of the consumer surplus of those who have no option but to empty their coffers to buy ever-shrinking sizes of land. Apart from those lucky few who acquire land after paying exorbitant prices, a large proportion is still left behind, who have no other alternative than that of paying increasing residential rents while their incomes remain stagnant and their purchasing power shrinks. The land and capital assets of the majority is shrinking, however, the rents they pay keep increasing; moving money from the bottom of the ladder to the top.
Land is a limited commodity and we cannot go on increasing housing infrastructure because we need to also ensure food security for our majority in these times of depleting forex reserves and increasing agricultural imports. Our country’s macro-socio environment is such that we assume land to be a factor of political capital and class privilege instead of it being an efficient factor of production.
The real estate dynamic in Pakistan is a classic case of demand and supply with suppliers of land enjoying market power. The supply increases at a lesser rate than increase in demand. Most of the increase in supply is hoarded by opportunistic groups of people in the pre-launch and development phases and then this hoarded inventory is offered for sale to the masses at inflated prices.
In his book titled ‘People, Power and Profits’, Joseph Stiglitz argues that economic opportunities should be distributed evenly within a society and should not be skewed according to the neighbourhoods and clubs one is part of.
The government also grants tax amnesties on sale and purchase of land and most of this money circulates in the economy unreported. This amnesty and under-reporting put inflationary pressure on the system but does not generate tax funds for provision of public goods.
The real estate and construction amnesty created an island of economic activity but did not create long-term sustainable jobs nor did it have long term beneficial spillovers in the rest of the economy.
Unequal access to opportunities and land is increasing the gap between the haves and have-nots, pricing out educated, hardworking beneficiaries by those who hoard land using money which is not documented in the system; for tax evasion purposes and money which was poured exclusively in the pockets of institutional investors through bond buy-backs.
The economic gap translates into a political gap and this political gap is then used to build in systematic safeguards to increase economic opportunities for oneself; cementing the elite further fuelling feudal practices.
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