On Wednesday October 10, Prime Minister Imran Khan unveiled the most ambitious housing project in Pakistan’s history. Named ‘Naya Pakistan Housing Program‘, the project aims to build five million homes for people belonging to the lower-income strata of the society or in Khan’s words, those who earn between Rs 10,000 and 25,000 a month.
If implemented properly, the project will provide housing to about 20 million homeless people in Pakistan, a staggering 10 percent of the total population. However, it is difficult to say that a project of such magnitude will be executed effectively and in a timely manner. The project is dotted by questions surrounding how it will be financed, who will finance it and where the houses will be constructed.
Firstly, the total amount of money required to construct five million houses is roughly Rs six trillion (or $44 billion). This is how: the average household size in the rural areas of Pakistan is seven. With 20 million homeless people, the number of houses that need to be constructed is around three million. It is, then, uncertain as to how Khan came up with the five million figure. It is possible that his estimate also includes housing for people who are currently living in houses of poor quality. On the supply side, the cost of construction varies from one part of the country to another.
An ordinary finish costs about Rs 1,200 per square foot. Assuming, conservatively, that an average house with two-three bedrooms is based on 1000 square feet, the cost of building a house comes out to be Rs 1.2 million.
$44 billion is an astronomical cost of a project undertaken in a country that has a current deficit of less than half that figure, that is, $18 billion. How will the government finance this project?
Borrowing more from IMF is only going to widen that deficit. Increasing taxes on income is going to going to be met with resentment because lower net income will, ironically, mean that a lot of people will become unable to afford rents. In Pakistan where less than one percent of people pay taxes on their income, the latter is going to be a futile public policy. Khan has indicated that a foreign company is willing to invest $20 billion in this project. That still leaves an unpaid balance of $24 billion.
In Pakistan after every few years, the new government slashes or eliminates programs initiated by the previous government, it is going to be hard work for Khan’s administration and private developers to build a sustainable housing policy. It is irrational to believe that five million housing units can be constructed in five years
Once the funds are arranged, if ever, for this project, the government will then need to decide who gets to build the houses. This will have implications on the quality of houses constructed. For example, in the United States, the Low-Income Housing Tax Credit (LIHTC) program is the government’s primary way of providing affordable housing to low-income earners. Under this program, Internal Revenue Service (IRS), the country’s tax collection agency, provides tax credits, sometimes as high as 70% of the total cost of construction, to private developers to keep the rental price low without compromising on the quality of housing. By bringing private investors in the market, the US government has modernised public housing.
While some critics point that the LIHTC benefits investors and developers more than those who are sheltered, the project has met with significant success. Between 1987 and 2016, 3.05 million housing units were constructed. Khan has indicated that he will involve private investors in this project but in a country like Pakistan where, after every few years, the new government slashes or eliminates programs initiated by the previous government, it is going to be hard work for Khan’s administration and private developers to build a sustainable housing policy. It is irrational to believe that five million housing units can be constructed in five years.
Finally, decades of research have shown that housing policy yields large societal benefits when houses are constructed in urban or semi-urban areas and recipients are incentivised to move there. It is half as much work to relocate people from rural to urban areas and give them access to better job opportunities than build houses in rural areas, where subsistence on agriculture income is difficult.
New research also suggests that housing policy that requires relocation from rural to urban areas does not result in an increase in the crime rate. If anything, relocation breaks the concentration of poverty in rural areas as newcomers embrace opportunities for better employment and education in urban areas.
As of now, the pilot project of Naya Pakistan Housing Program is set to be launched in seven semi-urban and urban districts. When there’s no conversation on housing development for 70 percent of the country’s population who live in rural areas, it is hard not to wonder if the project is distributing benefits unevenly.
Once the Naya Pakistan Housing Authority sets foot on ground, more details on how the Naya Pakistan Housing Program will be executed will come into light. However, if the government fails to come up with a sound strategy on financing this project and to ensure that the houses will indeed remain affordable until foreseeable future, the housing crisis in Pakistan is only going to be further exacerbated.
The writer lives in New York City and tweets at @farazsahmed
Published in Daily Times, October 17th 2018.