13.

Housing for All

13.1.

Introduction

Shelter is one of the basic necessities of life and occupies the biggest portion of any human
settlement. Housing ownership promotes social cohesion and citizens participation in other
development activities. In view of ever-increasing demand for housing and a huge backlog,
some innovative methods need to be employed to make a major breakthrough in this area.
The National Housing Policy 2001 is well articulated but its implementation has not been at
the desired levels. Except for some positive measures for housing financing by the State
Bank, not much progress has been made on other recommendations.
Due to the strong linkage of the housing sector to the economy, the income
multiplier is generally very high, and the private and informal sector can play a vital role in
national development. Housing construction also generates direct employment including:
(i) absorbing rural labor and providing opportunity for seasonal employment for farm
workers, (ii) enhancing participation of women workers, and (iii) activating small-scale and
mostly self-employed industries including building construction materials, equipment,
fittings and fixtures. Affordable housing for low-income groups also contributes to poverty
alleviation, income redistribution and promotes individual productivity and household
savings.
In 1998, there were 19.3 million households in Pakistan, with average household size
at 6.6 persons and occupancy at 3.3 persons per room. The overall housing stock comprised
39 per cent Kucha houses mostly without proper water supply, 40 per cent semi-Pucca
houses mostly without planned sanitation or sewerage system, and 21 per cent Pucca
houses. As against the current incremental demand for housing estimated at 570,000 units
annually, only about 300,000 units are being built annually, mostly in urban areas.
Accordingly, the housing backlog, estimated at 4.3 million units in 1998, has increased to
around 6 million units in 2005. The majority of rural housing is Kacha, with minimal water
supply and sanitation or drainage services. About half the urban population is living in
slums and Katchi Abadis, with inadequate housing and living conditions. The share of
housing in the public sector programmes has progressively decreased from 10.9 per cent in
the 1960s to 5.9 per cent in 1990s, with limited institutional finance continuing to be a major
constraint in housing production and maintenance of old dilapidated housing stock. In
addition, more than 80 per cent of the total population cannot afford the financing terms
provided by the House Building Finance Corporation and other housing finance
institutions. Resultantly, the construction of low-income housing has been much slower
than the incremental needs.
13.2.

Issues
The following are the major issues in the housing sector:
i)

The households below poverty line have remained neglected.

ii)

Inadequate supply of developed land and its skyrocketing prices, particularly

in large cities, is making housing ownership beyond the affordability limits
of the majority of population. Related barriers include poor land

administration with inadequate legal and regulatory systems, and high cost
of property transactions.

13.3.

iii)

Housing for rural population, constituting two-third of the total population,

has not received adequate emphasis.

iv)

More than 30 per cent housing is in dilapidated condition requiring

improvement / replacement.

v)

An overemphasis on Katchi Abadis regularization in urban areas has

encouraged further encroachments.

vi)

Limited supply of housing finance, with weak mortgage collateral, does not
encourage institutional credit based housing development.

vii)

Traditional approaches of reliance on the Government have not resulted in

an increase in housing construction to match the needs.

viii)

Low public confidence in the housing development industry.

ix)

Most of the Local Governments lack required skills to effectively manage the
urban growth, provide basic utility service and maintain the infrastructure,
especially in low-income areas/Katchi Abadis.

x)

Lack of comprehensive planning at national, provincial, regional and local

level without effective coordination among various Government
departments, development agencies and other bodies has impeded housing
development.

Housing Strategy

In addition to the backlog of 6 million housing units, the incremental housing need
during the MTDF will be 3 million housing units. Increasing the house construction from
300,000 units in 2005 to 800,000 units by 2010 will only cater to the incremental needs during
2005-10. A much larger mass housing construction will be required if the housing backlog is
to be reduced during the MTDF. Accordingly, the strategy will be to undertake mass
housing programme with enhanced supply of institutional finance and long term fixed rate
financing options; increase availability of developed land; enhance proportion of small-size
plots for low income groups; undertake high rise condominium development, where
appropriate, to utilize land more effectively; build capacity for land administration;
discourage speculation in land; improve house construction technology including
standardization of components for mass production; regularize notified Katchi Abadis
complemented by policies to restrain the emergence of new Katchi Abadis; increase
community participation in housing and service delivery; provide sufficient and affordable
credit for rural housing to meet the needs of shelterless poor: invest in human capital to
improve the quality of construction; and put in place legal and regulatory framework to
facilitate the development of housing both in urban and rural areas.
The MTDF housing programmes would be developed as per the recommendations
of National Housing Policy, by the Ministry of Housing and Works in consultation with the
Provincial Governments and would be sustainable, both financially and environmentally,
with replicable models. The Government would assume the role of a facilitator for the

implementing of housing programmes rather than being the developer. Land Banks would
be established at the federal and provincial levels, and innovative techniques developed to
effectively involve the private sector. Consideration would be given to discontinuation of
auction policy for disposal of residential plots/ sites to arrest land speculation, and also to
capture a share of rising land values resulting from speculation to meet the housing needs of
low-income groups. Low-Income Housing Funds would be established at the provincial
level, and opportunities capitalized from the effective implementation of proposed Spatial
Planning Systems for development of rural and urban areas in the country. Salient features
of the housing strategy are outlined below.
13.4.

Land for Housing

The efficiency of urban land market needs to be improved. Weaknesses in the land
titling and information systems include institutional fragmentation between numerous
record keeping entities at different levels; inconsistencies between different types of records;
the lack of transparency, cumbersome and unsecured manual processes, and difficult
reconstitution of chains of land titles; the heterogeneity of rules and procedures between
agencies within the same urban areas; and widespread avoidance of formal property
registration. The strategy would include: (i) appropriate and affordable land use, building
standards and regulations; (ii) improving procedures for land transfers (including cadastral
mapping, titling, and computerized registration); (iii) measures to stop land being held
vacant for speculative purposes; and (iv) improving information to public on land-market
indicators. Comprehensive land information systems would be developed using modern
technology including computerization, remote sensing techniques, GIS mapping, satellite
imageries, and aerial mosaics, to record correct and up-to-date information regarding the
inventory and land classification, settlement patterns, land values and the extent of land
available in all urban and rural areas for future planning and development.
Land is required for any type and level of housing. The high income group
constituting only 20 per cent of total population is being serviced by the private and public
sectors. It is the balance 80 per cent that is being severely hurt by the soaring land prices at
varying degrees. Accordingly, the following strategy is proposed:
i)

Land Banks would be established at the federal and provincial levels. The
Banks will allocate lands for various housing projects/ new towns with focus
on low-income housing.

ii)

All suitable federal and provincial state lands would be transferred to the
proposed Land Banks.

iii)

The availability of land in the Land Banks would be increased by purchasing

cheap land in small and medium towns, and the proposed urban
development corridors with growth potentials determined through the
Provincial Spatial Development Plans.

iv)

Funds for purchase of lands would be obtained from the proposed LowIncome Housing Fund or loans from commercial banks. In case of loans, the
mark-up may be picked up by the Provincial Governments, at least in the
initial stages.

v)

Proceeds from the sale of commercial areas in Government schemes and

valuable State Land would be used to buy land in advance through the

proposed Land Banks.

13.5.

vi)

Land would be used as a resource to generate funds by allocating plots in

advance of actual development of housing schemes, as is being done by the
private sector successfully.

vii)

Geographic Information Systems (GIS) would be established at Tehsil level,

with aggregated information at district and provincial levels.

Housing Development

There is a whole range of housing catering to the various income groups. As the land
is a limited resource, it has to be used optimally to conserve it for the future and for other
uses like industry and agriculture. Accordingly, the large plot sizes would be discouraged
and the ratio of smaller plots shall be increased substantially to cater to the needs of the lowincome groups and to strictly control the formation of Katchi Abadis.
General Housing
i)

High-income group housing would be left to the private sector. The

Government would focus on low and middle-income housing demand.

ii)

High-income housing projects would provide for at least an equal number of

small sizes up to (up to 10 Marla) housing plots. This will increase the supply
of low-income plots substantially thereby lowering their prices also.

iii)

Recommendations of the National Housing Policy 2001 would be strictly

followed by the federal and provincial authorities.

Low-income Housing
i)

Low-income Housing Funds would be created at the federal and provincial

level, which may be funded from private and Government sources as
follows:

25 per cent of the Non-utilization Fee for vacant plots after a specified
period. Non-utilization Fee to be substantially increased in view of the
rapid increase in the prices of the urban plots.

25 per cent of the transfer fee charged by the private developers,

cooperative societies, development authorities and Government
departments. The Transfer Fee for vacant plots to be increased in view of
higher gains to the plot owners.

Allocations/grants
Governments.

Consideration to be given to allocating certain percentage of the sale

proceeds from the Privatization of public enterprises.

Private donations.

from

Federal

and

the

concerned

Provincial

Assistance from development partners and bilateral internal donors for

Low-Income group housing.

Consideration to be given to using Zakat Fund.

Determine additional ways and means to secure at least a small

percentage of high profits being gained by the plots speculators.

ii)

In all the Government and private housing schemes, the ratio of small plots
would be increased (not less than 50 per cent). Small size plots would be
cross-subsidized from the sale proceeds of larger plots and commercial areas.

iii)

Research would be carried out to develop low-cost housing and determine

the optimum size of plots for low-income groups. The development of
socially integrated housing areas, both in urban and rural areas, would be
encouraged.

Government Servants Housing

i)

Housing schemes for Government servants of all grades, with emphasis on

the lower grades, would be pursued.

ii)

Punjab Province has recently established Government Servants Housing

Foundation under an Act. It is about to launch its first model project in
Lahore, based on advance payments to be deducted at source. As a large
number belong to the category of low-income group, a substantial need of
low-income housing will be met through this replicable model. Other
provinces could consider initiating similar programmes.

iii)

Additional programmes of Workers Housing will be developed and

implemented on fast track basis, throughout Pakistan.

Katchi Abadis
i)

The programme should be de-emphasized in favor of genuine low-income

housing areas with the objective that emergence of new Katchi Abadis is
stopped.

ii)

Katchi Abadis regularization and improvement programme should be

restricted strictly to the already notified Abadis.

iii)

For Katchi Abadis on private lands, the role of the Government would be to
facilitate dialogue between the owners and the residents.

iv)

Sindh model of Katchi Abadis regularization with the land title tied to
payment of dues (land and development cost) should be considered for
adoption by other provinces.

v)

The experience of Khuda-ki-Basti in Hyderabad, being self-financing and

target group oriented, should be replicated. The development cost can be
made affordable through the involvement of the residents and other
measures.

vi)

No Katchi Abadis should be regularized free of cost.

vii)

Katchi Abadis on prime locations should be offered reasonable alternate sites

for relocation or accommodated on a portion of the location in high-density
development. The remaining areas should be sold to generate funds for
developing the low-income areas.

viii)

The standards of services/ utilities being provided in Katchi Abadis should

be improved incrementally.

ix)

Community loans for house construction/ improvement should be

considered under the micro credit programmes.

Rural Housing

13.6.

i)

A greater emphasis on rural housing to reduce the population influx to big

cities, with increase in house ownership.

ii)

The programme of the Punjab Government under Jinnah Abadis Act to grant
5 Marla plots for housing for rural shelterless to be expanded with initiation
of similar programmes by the other Provinces.

iii)

Incremental provision of water, sanitation, electricity, health and education

facilities to be ensured through a phased but integrated programme on
sustainable basis by provincial governments.

iv)

Affluent individuals belonging to the rural areas to be encouraged to

participate in Adopt a Village scheme for provision of basic facilities and
services. Once some models are developed, the idea can be promoted
through mass-media campaigns to reach potential sponsors in cities and
abroad. Overseas Pakistanis have done similar efforts on a small scale, which
can be turned into a movement with proper advertising.

v)

Small loan facilities to be made available at low-mark up for house

improvements and new construction.

vi)

Research to be carried out to develop low-cost indigenous construction

models, with emphasis on construction quality.

vii)

Rural housing service centers to be established to furnish information on

credit, low-cost technology and building material.

viii)

Private Foundations and Rural Housing Cooperatives to be encouraged to

undertake development of villages with local participation on self-help basis.

Housing Finance

Currently there is inadequate housing finance, management capacity, and

awareness. Weaknesses in the land titling and land information systems restrict the
possibilities of mortgage finance to limited urban areas and are largely responsible for the

concentration of lenders to the upper-income groups for whom the property

collateralization is not the main risk-mitigating factor.
The lack of a long term fixed rate funding market acts a constraint as it increases the
risk for the lenders and restricts the menu of long term mortgage products thus curtailing
affordability of the middle and low income groups to buy even a small plot and build house
thereon. The main funding from the existing banks for housing loans is derived from their
deposit-base, which leads to major financial risks relating to interest rates and liquidity. The
interest rate portion is managed by relying on floating rates and keeping fixed rate
durations for just a few years. Liquidity risk is currently low due to constraints levied by the
State Bank of Pakistan delineating a maximum exposure limit for the banks vis--vis the
home finance.
Until now the main crux of housing mortgagees was towards the floating rate side.
Given the recent run up in rates, the mortgages have been the primary victims, as they have
had to pay the cost of rising interest rates in the shape of enhanced monthly mortgage
payments. In a fixed rate mortgage, which is funded by short-term liabilities, an increase in
interest rate primarily affects the mortgagee financial institution because of re-pricing of
liabilities. Thus, it is prudent to develop long term fixed rate funding arrangements for
enabling banks to offer fixed rate mortgages. Institutional investors such as Pension Funds
and Insurance Companies can afford the alternate long-term investment opportunities such
as 15 or 20-year mortgage backed securities. However, banks, especially the large ones with
huge pools of funds in the shape of demand and time deposits liabilities, are unwilling to
forego the high spread they are earning by financing their long term housing loans through
short-term liabilities.
It is imperative that a properly functioning local housing bond market is developed.
This would allow the banks to match their assets with their liabilities more efficiently, thus
reducing both their interest rate, as well as liquidity risks. This would require a well thought
out strategy for the bonds duration, mark up rate and liquidity management after bonds
issuance. It would be important to facilitate the market through a refinancing structure
which not only alleviates the liquidity risk incurred by the primary lenders, but promotes
sound practices and standards in the lending activity through its refinancing requirements
and have an overall catalytic effect on the development of house lending activity. The
pooling of funding needs would result in larger, more transparent mechanism, which
would decrease the relative issuance cost and help ensure liquidity in the secondary market
for bonds.
In addition to a permanent long-term capital source, some financial hedging
instruments may be necessary to protect the lenders against the financial risks. Promotion of
the mark-up rate swap market would be of special importance given (i) the likely obstacles
in extending bonds maturities beyond 15 years, (ii) the practice of adjustable mortgage
mark-up, and (iii) the repayment risk incurred by the lenders. The creation of such
derivatives depends in particular on the liquidity of the private investment bonds market,
which would be used by swap sellers to hedge their positions.
As a measure of establishing a pass though mechanism for funding the housing
loans, a secondary mortgage company could be considered. The government would need to
facilitate by offering a credit enhancement mechanism as well as equity participation, on the
pattern of Cagamas of Malaysia and Fannie Mae and Freddie Mac of USA, which enables
the interested financial institutions to generate off balance sheet housing loans.

13.7.

Private Sector

Increased attention would be given to the private sector involvement in the delivery
of housing services and land development. For this purpose, appropriate incentive systems
and legal and regulatory frameworks would be developed. A priority will be to make
market entry easier through better security of tenure, access to land and credit, and
regulations to allow mixed use of land, and affordable planning and building standards.
Given the massive investment required in housing infrastructure, a greater focus is needed
on the creation of cost-effective and efficient public-private partnerships that include
mechanisms for attracting private capital for infrastructure provision.
13.8.

Institutional Strengthening

Provision of Housing for All requires strong and cost effective institutions, acting
as facilitators rather than developers, capable of using modern technology, methods and
techniques efficiently. Accordingly, emphasis would be placed on strengthening housing
sector institutions and related research organizations including construction technology, to
establish replicable and sustainable models for mass housing.
Housing is mainly in the provincial domain. It is envisaged that the Provincial
Governments will play the lead role in enabling the sustained delivery of Housing for All.
This includes developing appropriate mechanisms and institutional frameworks, and
setting up provincial housing delivery goals and performance parameters in support of the
national housing delivery goals. Housing is also a local community affair where end users
are both the contributors and stakeholders for all types of housing activities. Accordingly,
the role of the local governments would be important in enabling, promoting and
facilitating the provision of housing to all segments of the population within their respective
jurisdictions.
It is envisaged that the Federal Government would provide the overall coordinating
and monitoring mechanism through the Ministry of Housing and Works. Provincial
Governments will initiate all necessary legislative, regulatory, and institutional
strengthening measures, both at the Provincial and local government level, for the effective
implementation of the National Housing Policy and to achieve the MTDF targets in the
respective provinces.
13.9.

Research and Development

The MTDF envisages the promotion of integrated construction approach through a

combination of design orientation, use of traditional and indigenous building materials and
adoption of new construction techniques, making housing construction cost-effective and
ensuring upgradation of quality, by:
i)

Standardization of principal building components and allied specifications to

facilitate their maximum production making it cost effective and affordable
for the low and middle income groups.

ii)

Introduction of building materials already developed such as compressed mudbrick (Adobe) and ferro-cement roofing system in rural low-rise housing.

iii)

Promotion of research and development on housing and construction materials

and effective coordination of research institutions for speedy application.

13.10. Targets and Financial Outlay

An investment of Rs. 950 billion is envisaged in the MTDF for the development of
housing, including Rs 920 billion investment by the private sector and Rs. 30 billion in the
public sector. The private sector will be involved in construction and improvement of at
least 3 million housing units during 2005-10 in urban and rural areas. In addition, the
private sector would also undertake area development schemes with necessary
infrastructure to provide developed residential plots, and construct about 25,000
houses/flats for the public servants under house ownership schemes, mostly in urban area
during next five years.
The PSDP allocations would be utilized mainly by the Federal and Provincial
Governments for undertaking infrastructure development in ongoing housing programmes
and new area development schemes for provision of developed residential plots with
necessary amenities. In addition, the Government would continue constructing public
offices and essential accommodation for Government servants and Constabulary Armed
Forces. Details are provided in Table 1 below. During the first year of MTDF (2005-06), the
federal PSDP allocation for housing is earmarked as Rs. 2 billion for housing on ownership
basis, Federal Government Employees and construction of office buildings. Whereas, the
Provincial Governments are required to allocate Rs. 3 billion during 2005-06 in order to
accelerate the house construction activity throughout Pakistan.
Table 1
PSDP Allocation for Housing
(Federal and Provincial)
(Rs. Billion)
No.

Item
Total

2
3
4
5
6
7

Allocation
Federal Provincial

Secondary/tertiary infrastructure development for

schemes to be developed under the Housing on
Ownership Programme (Seed Money)

12

10

Housing for Federal Government Employees and Civil

Armed Forces (1000 Units)

5
2

1.5
-

3.5
2

2
30

0.5
9

1.5
21

Housing for Provincial Governments Employees (2000

Units)
Construction of Office Buildings and Structures by
Federal and Provincial Governments.
Katchi Abadis Regularization and Improvement Program
Houses/Flats for Industrial Workers at Labour Colonies
@ 1000 Flats/2 rooms Houses per year (from WWF)
Seed Capital for Establishment of Low Income Group
Housing Fund and Land Bank
Total

With the comprehensive strategy adopted for MTDF covering land, housing, finance,
institutional strengthening, and research and development, and by enhancing private sector
participation, with Government in a facilitatory role, the stage has been set for meeting the
objective of Housing for All. Accordingly, a sharp increase is envisaged in housing
construction to meet the incremental needs and to commence the process of reduction of the
huge backlog.