The federal budget of 2025-26 has given a negative signal on the priority to be attached to shelter. The mark-up subsidy of over Rs 21 billion in 2024-25 has been completely withdrawn for 2025-26 for the Mera Pakistan Mera Ghar Scheme. Instead, a small allocation has been made for a subsidy of Rs 5 billion only to low-cost housing.
This change in priority comes at a time when the access to shelter has become more and more difficult for low-income households in Pakistan. Households in the bottom quintile devote almost 20 percent of their income as expenditure on housing. This cuts into other expenditure, including on food, as accommodation is a fundamental requirement for any family.
There is a big divergence between sources on the estimated number of homeless households in Pakistan. According to the Population and Housing Census of 2023 there are 200,000 homeless households. This implies a homeless population of almost 1.3 million people. However, according to the World Population Review, the estimated homeless population in Pakistan is as high as 8 million. This is in comparison to the number in Bangladesh of 5 million.
Beyond the homeless there are also a large number of low-income households who are living in sub-standard shelter and/or in very limited living space. According to the Population and Housing Census of 2023, there are as many as 12.4 million housing units out of the total number of 38.3 million units, which are of low quality, with Katcha or Semi-Pucca construction.
The Census also highlights that there are as many as 12.1 million housing units with only one room. The high density is demonstrated by the fact that as many as 5.6 million of these units with only room have four or more persons living in that one room.
The inequality in access to housing is even more pronounced than the distribution of income. There are 13.8 million housing units with three or more rooms and only four or fewer persons living in 7 million of these units.
There is also a limited access to basic services. The coverage of electricity is fortunately high and 92 percent of the housing units have an electricity connection. However, the access to gas is limited to only 38 percent of the households and tap water is available in only 31 percent of the housing units in urban areas.
A key indicator of housing affordability is the residential status of households. While 82 percent of the housing units are owner-occupied, there are still 6.9 million housing units which are rented. The proportion of rented housing units has been rising over the years, given the limited access to housing finance of low- and middle-income households.
The rate of build-up of the housing stock has varied substantially. Only 1.9 percent of housing units are under construction. However, almost 3 percent of the units were added annually over the last five years.
This is also confirmed by the low rate of growth of between 3.5 to 4 percent annually in the level of investment in real estate at constant prices. Currently, the share of private investment in housing is close to 20 percent. Fortunately, it has held up more than total investment with a growth rate of 4 percent, while total investment declined by 15 percent in 2023-24.
The current share of the real estate sector in the GDP is 5.5 percent. It has declined somewhat over the last two decades. This is also evidence of the growing shortage of housing. Estimates are that the shortfall is close to 5 million housing units. Also, this share is smaller than other South Asian economies. For example, it is 7.3 percent of the GDP in India and 7.8 percent of the GDP in Bangladesh.
Another indicator of the growing shortage of housing is that rents in July 2025 are 5 percent higher than the level in June 2024. The rate of inflation in the overall Consumer Price Index in the same period is 3 percent.
There is need to distinguish between commercial and residential real estate. Currently, the share of rental values, imputed or actual, is estimated at 22 percent of commercial property and 78 percent of residential property. The share of commercial property was 16 percent a decade ago.
Given the prevailing shelter conditions for low- and middle-income families, the time has come to focus on housing finance and other measures to improve these conditions.
The International Finance Corporation (IFC) has prepared a very useful report on housing finance in Pakistan. The report highlights that there is a high demand for housing units from Pakistan’s low-income segment; however, the current supply is negligible.
The IFC Report also highlights the extremely low mortgage finance ratio to GDP in Pakistan at only 0.3 percent, whereas the South Asian average is much higher at 3.4 percent of the GDP. Consequently, there is a very large under-served market for low-cost housing finance.
The report has recommended the introduction of a National Financial Inclusion strategy, reduction in general reserve requirements, risk weightages and markup subsidies for affordable housing finance. In addition, it is proposed that tax deductibility be available to financial institutions of the cost of bad housing debt of small borrowers.
Overall, the shelter conditions for low and even middle-income households are inadequate and worsening over time. The access to housing finance is extremely limited. The subsidy to housing finance by the federal government must be fully restored and augmented rapidly. There is a need for focusing on shelter as key priority for improving the living conditions of the people of Pakistan especially in the two low income quintiles.
Copyright Business Recorder, 2025
The writer is Professor Emeritus at BNU and former Federal Minister