In the midst of tackling COVID-19 and its devastating effects on the lives and livelihoods of people—because not only is the economy expected to shrink considerably, but thousands of more Pakistanis are projected to slip further into poverty—PM Imran Khan announced a construction package to resuscitate economic activity and create employment. This was also supposed to push projects in the Naya Pakistan Housing Program (NPHP). The response to the policy however has been mixed. Many critics of the package believe it will not yield the desired outcome, even though construction is a well-recognized job creator. Prominent reasons cited include lack of affordability on the demand side, poor and inefficient regulatory environment not conducive to low income housing and limited commercial viability on the supply side. BR Research sat down with Urban Planner Nadeem Khurshid to get to the root of the housing challenge in Pakistan. Nadeem has worked in the development sector for over two decades involved closely in several public sector projects. He currently runs his own consulting firm.
Here are edited excerpts:
BR Research: How has city planning in the world developed, and how would you categorize city planning in Pakistan?
Nadeem Khurshid: City planning is a broader perspective which involves people, land and markets and the activities surrounding them. Through planning, these three are facilitated. We have to create mobility arteries to connect the three and the primary purpose is to maximize the benefits and reduce the adverse environmental and social impacts. In Pakistan, the city planning has mainly only facilitated the elite. There is a great disconnect between the elite and the non-elite. The spending has concentrated in the former while the latter has been left to deplete on its own.
Around the world, city planning became necessary because following industrialization, cities became dilapidated. Economic activity was growing but quality of life was worsening. In early 1900s, policymakers started to develop an understanding of city planning and how to make it easier for people to live. At the time, people lived in congested polluted dwellings with poor public service delivery such as sanitation, access to water, clean air etc.
Governments decided that they should move people outside the cities in what is now called suburbia, while industrial areas should be developed separately. People had to commute long distances which became easier as more cars were manufactured and road infrastructure was developed. Mass transit systems however were not connecting as closely to the suburbs as they should have been. The move also led to a degeneration of downtowns—city centers became rundown and vacant. Land value depreciated as a result. Urban planning’s next response was to move toward regenerating these urban centers, toward vertical and mixed-use development which is where the world is at right now. By mixed-use we mean, social infrastructure, workplaces, businesses/commercial and leisure are developed together with housing constructed vertically within denser walkable proximity
BRR: Walk us through the history of master planning and how (in)effective has it been in Pakistan?
NK: In 1907, British Town and Country planning legislation came to force. That was the first time the term master plan was introduced. Later this was called Development Planning System. In the U.S., urban planners started zoning where maps of the cities were used to strictly designate chunks of land for certain uses. Then they moved to Comprehensive Planning Systems where they were dealing with cross-sectoral planning, design, environment, transportation, housing and other segments.
The advantage this system has is that there is an umbrella local government system called city councils (or boroughs) and there is a single department that regulates and oversees the whole system with no interference from central powers. They generate their own revenue, are autonomous, self-sustained and they are included in decision making. In Pakistan, the system is mostly bureaucratic. Cities are not empowered and not included in planning and decision making. Without authority, financial autonomy and resources, no planning can be effectively implemented.
Most importantly, city governments are not run by elected officials. They have no ties to the city community. They are not invested in the welfare of citizens and residents cannot question them or hold them accountable. It is a job. This too stalls the effective growth of cities.
One major problem in implementing any master plan in Pakistan is that within every city, there are too many departments working in silos. In Karachi for instance, there are several departments responsible for different areas— waste management, building control, water and sanitation, mass transit system etc.—and they report back to the provincial government. When there are so many departments, without vertical and horizontal integration, they cannot work under one guiding principal. They work in friction too and this is a dominant reason why master planning in the city has failed.
The second reason is that once a city has taken its shape and it has developed organically, what could a master plan accomplish? It does not have any enforcement power like a regulatory framework would. In addition, cities are now changing rapidly. A master plan is typically made for 20 years but urban dynamics change drastically and rapidly now for a master plan to remain relevant with the pace of change.
BRR: You mentioned that cities are now moving vertical. Why hasn't this taken off in Pakistan, save for major cities?
NK: Erecting tall buildings is far tougher than setting up a housing scheme or contributing to sprawls. Practically, it is very easy to get approval for a housing scheme. A project like Bahria is sold overnight on papers. Buildings cannot be realized this quickly. In addition, the profit margins in housing schemes are also really high (300-400%) compared to projects where they are construction buildings. It is very expensive. Builders have to spend substantial sums of money to buy land and add expensive building services. In housing schemes, there is any construction as such. The builders are responsible for constructing roads and setting up water supply and sewerage lines. They also don't have to buy land upfront. The builders pay 15-20 percent to land-owners (this runs for 3-4 years) and get power of attorney from them on the basis of which they get approvals from the authority. The capital investment here is very low as compared to building construction. The construction approvals also take much longer as many different aspects have to be considered including safety, security, environment etc.
The other issue here is the social aspect. The mentality in Pakistan is that everybody wants to hold a piece of land and does not want to share ownership of anything. They feel pride in home ownership. There are also no condominium laws in Pakistan which means land titles are not secure in vertical development. There is an insurance system within these laws that provide security, for instance, in case of a collapse. When Margala Towers fell, flat owners lost their housing and could not retrieve any of the funds they spend when they purchased the apartments because the building was not insured.
BRR: Building on that, how do you see the construction package that the PM has introduced? How successful can it be?
NK: The problem with the construction package is not at the incentive end but the underlying issues that will prove to be a disincentive; issues I have already mentioned above. Lack of planning and execution at local or a city level, disincentive for builders to go into vertical construction, a social tendency for most Pakistanis to own land when globally, housing is provided through rental markets. Affordability for home ownership can simply not be created across all income groups, especially if we want to provide housing for low-income. We will have to move toward rental.
You also have to remember that the role of city authority is very important. Cities are controlled by regulations, not by federal government policies or construction packages. Regulators have very strict rules as there is a lot of money involved in real estate development. Too much regulation makes it difficult for good projects to take off. Moreover, regulators are land-owners and developers themselves. They compete with market developers and squeeze their business space. Lahore Development Authority (LDA) for instance, is currently developing the largest sprawl in Lahore and has so far developed over 150 housing schemes. This is a large conflict of interest.
BRR: The focus for PM Imran Khan's Naya Pakistan Housing program is to provide home-ownership but not everyone can own a home, as you pointed out. How does rental housing work?
NK: There is no rental market in Pakistan but these can be developed. Let me illustrate how this works through an example. Overseas Pakistani Foundation (OPF) has a program and has housing schemes in major cities. They have overseas members and after balloting, the members are sold plots. What OPF could be doing is constructing houses and renting them out to generate income for overseas Pakistanis. Just holding a plot for 20 years is a waste of investment.
Globally, buildings are constructing and those with liquidity invest in these real estate projects. When bank mortgages are cheaper, they buy these properties and rent them out. Rent is typically higher than the mortgage on that property which results in a profit. Meanwhile, the property value is also appreciating. The government has little to no role here. Its only role is to strengthen the financial markets so mortgages are available. This is a good model that we can adopt.