Housing scheme

14 Jul 2020


THE policy and fiscal incentives announced by the PTI government to push construction activity has two objectives. First, the ruling party is desperate to deliver on its promise of building 5m affordable housing units for low- to middle-income families. Soon to complete its second year, the government is still struggling to launch its ambitious Naya Pakistan Housing Programme. Some urban public housing schemes announced in Punjab under its banner, for example, have either been abandoned or have yet to see the light of day. Secondly, the PTI is anxious on account of the economic slowdown that set in shortly after it came to power. The stringent stabilisation policies imposed by the IMF deal had further decelerated growth before Covid-19 sent the economy spiralling into recession. The prime minister now hopes to lift the economic gloom, kick-start growth and create jobs by spurring construction activity in affordable housing. But can he?

Ideally, such incentives as a blanket amnesty on investments by end December, a price subsidy of Rs300,000 per unit on the first 100,000 low-cost homes costing up to Rs2.5m, interest rate subsidy for five-marla and 10-marla houses for five years, allocating Rs330bn for housing finance by banks, and substantial tax relief given by the centre and the provinces to developers and builders should revive projects. But that is unlikely to happen in the short term, at least not in the way the government is hoping for. Such policies have seldom worked.

For starters, the demand for housing remains depressed because of the uncertainty induced by Covid-19 as reflected in consumer surveys in recent months. On the supply side, there’s little evidence to suggest the presence of a sufficient appetite for large investments despite generous incentives. As far as mortgage financing is concerned, banks are not likely to take the credit risk unless strict foreclosure laws ensuring minimum judicial intervention are enacted to enable banks to swiftly recover their money in case of default. Even if everything goes according to script, the incentives package will add to the existing urban sprawl, benefiting affluent people and developers/investors rather than create low-cost housing for low-income segments. A better way of channelising private investment in truly affordable housing lies in the government leasing out unused state land in urban and semi-urban areas along railway tracks, highways, motorways, etc for 100 years or more at nominal rentals to developers for constructing high-rises with two- to three-bed units. Such projects should be equipped with education, health and entertainment facilities along with commercial areas. Initially, the government may encourage construction of such housing complexes for its employees up to Grade-16, lien-marking their post-retirement benefits as security to ease investors’ concerns. Once the foreclosure laws and mortgage finance industry are restructured, and an enabling environment created, this model could be replicated for the rest of the population without any financial burden on the exchequer.

Published in Dawn, July 14th, 2020