There has been a long history of housing insecurity for people living in urban areas in the country. Decline in homeownership, growing informal settlements and specially unchecked private rental market altogether contribute in this insecurity. However, the recent disclosure by State Bank of Pakistan’ Inflation Monitor June 2021 is more alarming, which reveals that the housing rent topped the list of 10 contributors to the urban Consumer Price Index (CPI).
The State Bank issue last week its Inflation Monitor for June 2021 declaring the house rent as the top contributor following witnessing sharp increases in urban areas. Housing has the weight of 19.26% in the top-10 list while it contributed the highest 12.17% in the main inflation. The annual CPI-based inflation for June is 9.7% against 8.6% in the same month of Financial Year 2020 while the annual average inflation in Financial Year 2021 was 8.9% against 10.7% in the preceding fiscal year.
In Pakistan housings in big cities like Lahore, Karachi and Islamabad is already one of the most expensive and cramped necessities. But the above report loudly speaks that shelters for poor is not only a serious problem but now turning into a major crisis in the country. The surging rent prices reflects the increasing cost of real estate and construction in recent months, affecting the rental housing market in cities because landlords now demand a higher return on their investments.
The trend also indicate the increasing gap between demand and supply of housing in the cities. After all, when people don’t own homes they will have to rent a place to live. The rise in rents mean that urban housing is now turning into a major crisis for city dwellers, especially those living and working in places like Karachi and Lahore. Moreover, the COVID-19 pandemic has severely disrupted construction, made it difficult for many households to pay for their shelters and seriously hurt the housing sector.
The government estimates a shortage of 10 million houses in the country and the shortage is mainly related to urban areas which means more than half of the urban population is living in rented houses. While the backlog is further increasing by around 350,000-400,000 units per annum.
Realizing the severity of the situation, Prime Minister Imran Khan has made it mandatory for banks to disburse 5% of their investment for housing projects, besides the government is providing a sharp cut in the interest rates. Furthermore the government announced plans to impose penalty if banks fail to meet their loan disbursement targets for housing projects. However, these measures have, so far, been slow to pick up. As, in spite of the central bank’s instructions banks are reluctant to lend to most applicants owing to the latter’s lack of payment history or other reasons.
On the other hand, the government hasn’t delivered so far to meet their promise of affordable housings. Prime Minister Imran Khan pledged to make 5 million low cost houses under their flagship Naya Pakistan Housing Program. In the shape of amnesty scheme and taxation relief, the government also provided unprecedented incentives to the real estate sector in the Construction Package 2020, which serves a boost to affordable housing for poor.
But it is an irony, the prime focus of realtors as well as of the federal cabinet including Prime Minister himself has remained on luxury real estate expansions and upscale commercial developments rather low cost housing. Ravi River Urban City, Central Business District in Lahore, Twin Islands City in Karachi are some names in this regard. On the other hand if government increases the supply of affordable and accessible housing that meets the needs of a diverse range of households, it would reduce ongoing rental inflation as well as increase homeownership, and can avert a major crisis.