THE recent pickup in the disbursement of subsidised bank loans among first-time homeowners for the construction or purchase of a home is a positive development given the growing housing shortage in the country and the commercial banks’ aversion to expanding this segment of the economy in order to avoid potential default risks. Loan disbursement for low-cost housing jumped by a whopping 46pc in the three months to February, according to State Bank data. Yet the disbursement of loans for low- to middle-income households under the Mera Pakistan Mera Ghar scheme, launched in October 2020, lags behind the actual demand should we take into consideration the gaping difference between the size of financing approved and disbursed by the banks so far. SBP governor Reza Baqir recently claimed that the banks have approved financing of Rs157bn under the MPMG and disbursed Rs56bn in the first eight months of the present fiscal year. That is a significant improvement from the past; yet, at the same time, it underscores the large gap between the demand for and supply of affordable housing units. This shows that the creators of the MPMG, which envisages the construction of 5m units, have made a cardinal mistake while crafting the scheme: they failed to take measures to increase the supply of affordable housing units in accordance with the anticipated appetite for home loans that the subsidised bank financing has unleashed. Private investors are reluctant to put their money into low-cost housing projects because of their commercial unviability due to skyrocketing land and construction costs.

The government is trying to make up for the lack of private investment in this segment by launching the construction of several thousand units but can do only so much. It means that housing for low-income groups, such as school teachers, nurses, low-cadre government employees, small business owners, etc remains a pipe dream. They are also those whose requests for housing loans are not considered by the banks as they are unable to prove their loan-worthiness due to lack of a credible credit history. The affordable housing programme could have been a game changer for the economy and low-income groups if the focus of the tax amnesty scheme and incentives were those people who cannot imagine owning a home. It could still turn things around if the government is somehow able to make low-cost housing commercially viable for private investors by sharing state land as its equity in such projects.

Published in Dawn, March 26th, 2022