By Kamil Khan Mumtaz & Hina Shaikh
The explosion in population and urbanization has left a growing number of people without access to decent, stable housing. The last census in 2017 confirms the housing stock is now 32.2 million of which 39% is urban. The urban population is expected to grow by 2.3 million per year over the next 20 years, which translates to 360,000 households at 6.3 individuals per households. Ownership remains concentrated in the top income bracket leaving a limited supply of housing for low-income households. Shelter insecurity at the bottom income strata and lack of affordable housing has thus become a compelling public policy issue.
The last blog discussed the issue of housing, its root causes and some possible solutions. This blog looks at a few areas in the present discourse that require clarification.
What is affordable housing?
There is not much clarity on precisely what is affordable by the consumer, in this case the average Pakistani household. Globally, housing is defined as affordable if a basic housing unit, which provides a minimum amount of personal space (anywhere from 250 to 500 square feet) and amenities, is accessible at 20% to 40% of gross monthly household income for either rent or mortgage. A basic working tool for computing actual and affordable housing prices is presented below to help bring some realism into the discussions on affordable housing and provide a basic framework for informed deliberations on housing economics and planning policies and strategies.
The list of factors, discussed below, impacting housing costs, and eventually ‘affordable’ and ‘actual’ price is not exhaustive, and can be expanded and contextualized, if required, for greater accuracy.
Occupancy: This refers to the number of persons living in a residential building and can be measured in terms of Households per Dwelling Unit (HH/DW). For the simulations presented here, we have taken average occupancy as 1.5 HH/DW for single family houses and 5 HH/DW in case of multi-storied apartments.
Household Income: According to the Household Integrated Economic Survey (HIES) 2015-16, the average Pakistani household of 6.3 persons, has a monthly income of PKR 29,150. This comes out to be almost half the internationally accepted poverty level of USD 2 per capita per day, which comes to PKR 57,790 per average Pakistani household per month, and even lower than the subsistence level of USD 1.4 per capita per day, or PKR 39,753 per household per month.
Affordability Ratio: The official National Reference Manual on Planning and Infrastructure Standards (NRM) presents models to determine affordability in terms of investment in years of household income, by taking into account the household propensity to save and duration and interest rates of loans, etc. A household can afford a total outlay on housing not exceeding 2.7 times its annual income, as derived from financial analysis of House Building Finance Company loan conditions, which are more favorable than bank loans. If past personal savings and zero/low interest loans from relatives, etc., are included, the rule of thumb for affordability may be stretched to a capital investment equal to 3.5 times the annual household income. The simulations here stretch this ratio still further to 7 times the annual household income, assuming the most favorable terms for loan interest and repayment period.
Land Area: The NRM gives the size for a plot of category ‘F’- for the lowest income group – as 72 sq.m. (775 sq.ft.). Assuming one household per plot, this would work out to be 122.8 sq.ft. per person. However, the pressure on housing may lead to the average occupancy exceeding 1.5 HH/DW. The land area requirements per person can be reduced by increasing occupancy, for example, by increasing the number of stories for multi-occupancy dwellings.
Constructed Area: The NRM gives a maximum floor area ratio (FAR) – the ratio of a building’s total floor area to the size of the piece of land upon which it is built – of 150% for category ‘E’ and ‘F’ plots. This comes to 1162.5 sq.ft. per plot, or 184 sq.ft. per capita for a single household occupancy. This compares favorably with the average available floor area of 102 sq.ft. per person in Asian cities. Thus, there is room for increasing the density/occupancy. For multi-storied apartments Building Regulations for Punjab recommend an FAR of 1:5.
Land Price: Land price is highly variable within and across urban and rural locations, determined largely by the distance of the dwelling unit from the place of work and services such as health and education and commercial activity. Thus, the availability of social infrastructure and transportation impacts both the effective cost of living and the market price of land. In ‘greenfield’ developments, land prices are lower, but infrastructure development cost would need to be added to the actual price of housing. ‘Infill’ development, in both urban and rural locations, takes advantage of existing infrastructure, reducing ‘development’ cost but would be reflected in higher prevailing land prices.
Built Area Price: Building costs are also highly variable, mainly due to materials and technology used in the ‘grey’ structure, apart from the differences in the quality of finishes. In rural locations, where land prices are lower, larger land areas are affordable, allowing for low-cost single-storied and low-tech structures. In prime urban locations, where land prices are high, land areas per DW end being reduced, necessitating multi-storied construction with its accompanying higher costs.
Table 1: “Greenfield” development is not an “Affordable” option for the average Pakistani Household
Table 2: “High density Infill” is the only “Affordable” option in existing cities
Table 3: “Infill” in existing rural settlements is the most “Affordable” option
(These tables are based on simulations done by Mr. Kamil Khan Mumtaz.)
Greenfield developments are not an affordable housing option for the average Pakistani household. Infill developments with high density multi-storied apartments, in existing cities, may be the only affordable housing option for urban populations. Infill development in existing rural settlements remains most affordable housing option, with the added advantage that increased land area per person, would facilitate production-based livelihood opportunities in organic farming, artisanal manufacture, forestry and animal husbandry.
Secondly, the role of subsidies as a solution to providing low-cost housing needs to be qualified. Somebody has to pay the actual price. ‘Cross-subsidy’ can of course work up to a point, if one product is over-priced to make up the balance for another product that is underpriced. The beneficiary will simply en-cash the freebee in the market place while the subsidizer has to bear the extra cost. The problem is when the subsidy is provided in the form of ‘common’ goods, such as public land, utility infrastructure, access to social infrastructure, tax waivers and financing terms etc. Here the cost is borne by the public exchequer. And when that is not only running on ’empty’, but is deeply in debt, subsidies are not affordable.
Thirdly, while densification of existing low-density urban areas has to be a part of the solution, terms such as ‘High Rise’, and ‘Vertical’ development need to be qualified. ‘High Rise’ normally means more than twenty stories. It implies very high costs of construction using high-tech materials, construction technologies and systems such as lifts, air-conditioning, etc. with a high load on the urban utility infrastructure on high valued land. This game of mega-structures and mega-bucks can only be played by big corporate entities: financiers, developers, consultants, builders, who all make super profits, but the money leaves the local economy. By contrast, low-rise, low-tech, high-density would be two or three, maximum five stories, implying lower costs and walk-up structures that can be built by small local builders. So, the money spent remains in the local economy.
Image Source: Housing in Pakistan and Why Children Live on the Streets
 National Reference Manual on Planning and Infrastructure Standards, Government of Pakistan, Ministry of Housing & Works, Environment & Urban Affairs Division, Islamabad, 1986, p 45.
 NRM, p 46.
Hong Kong: 15 sq.m. or 161 sq.ft. per capita; Africa: 8 (86sq.ft.); Asia: 9.5 (102.26sq.ft.). in UN Habitat, Floor Area Per Person in Cities, UN Habitat 2001
 Local Government & Community Development Department, Government of the Punjab, Model Building and Zoning Regulations for Developing Authorities in Punjab, 2007, p 14.