In Pakistan, owning a house is more than just shelter; it is a symbol of financial stability and social status. However, this goal is slipping out of reach for many as soaring property prices and real wage decline have made homeownership increasingly unaffordable. Before getting into the extent of this problem, we first need to understand the country’s demographics and how the problem is only expected to amplify.

By 2100, Pakistan is projected to be the third largest country in the world with more than 500 million inhabitants. Based on the average household size of 6.3 per 2023 census, the country potentially faces an annual demand of 977,497 houses. While that foretells a massive planning and resource challenge, the distribution is even more telling.

According to the 2023 census, urban areas, which house 39 per cent of the population, expanded at 3.65pc annually, almost twice the growth rate of 1.90pc in rural areas, driven by the double whammy of high births as well as internal migration. Both this pace and the gap have widened from 2017, when the rate of change for urban areas was 3pc compared to 2pc rural.

The ramifications for housing are significant: the top 20 districts by density contain 83m people, yet occupy merely 5pc of the landmass, according to a new policy brief, “Urbanisation, Housing Supply, and the Credit Gap in Pakistan”, published by the Karachi School of Business Leadership’s InsightLab. What this means is that in the absence of proper metropolitan infrastructure, demand is naturally channelled towards more central locations where the supply doesn’t adjust accordingly, thus putting pressure on prices.

While demand-side incentives are great at developing depth in the mortgage markets, home ownership is a supply problem as low-cost options are almost negligible in core urban centres

Islamabad’s urban housing market best reflects the classic case of rising inaccessibility, where the average per-square-foot price is Rs31,000, whereas Karachi and Lahore stand at Rs27,000 and Rs21,000, respectively, as per Zameen.com. Since Covid-19, Pakistan’s urban housing market has generated staggering returns, with average per-square-foot prices rising by 103pc in Karachi, 115pc in Islamabad, and 90.9pc in Lahore. It’s no surprise then that renting is far more common in Karachi and Islamabad, with 36pc of households renting in both cities compared to 20pc in Lahore.

As urbanisation would accelerate even further in search of better economic opportunities and living standards, a growing share of the population will be unable to purchase properties in highly inflated urban centres. Eventually leading to increasing demand for rental housing, which would in turn put upward pressure on rents and gradually narrow the gap between rental and property prices.

While the demographic challenge is already hard to arrest, the housing problem is only exacerbated by a lack of credit access as Pakistan’s mortgage markets remain underdeveloped. High appetite from the government has systematically diverted liquidity towards the treasury and crowded out private sector credit, which stands at just 9.2pc of GDP.

Within that constrained pool, personal finance comprises only 11pc or Rs1.4 trillion, of which Rs507.2bn trickled down to mortgages as of December 2025. However, this figure substantially overstates the market’s depth, for it clubs house loans to both consumers and bank employees. In fact, the latter accounts for over 56pc of the scheduled banking outstanding housing advances.

In terms of volumes, the market is even more skewed as only 34,926 consumers had an outstanding housing loan from a scheduled bank as of December, out of almost 90m deposit accounts. Contrast this with slightly over 200,000 bank employees claiming 91,396 mortgages.

These challenges stem partly from the economy’s boom-and-bust cycles, in which borrowing costs fluctuate sharply, discouraging financial institutions from underwriting long-term loans while making markups prohibitively high and volatile for end customers.

Moreover, the lack of formal income and credit history, coupled with weak foreclosure laws, made the segment quite unviable. The data attests to this: mortgage non-performing loans stood at Rs14.8bn as of March, which represents 32.8pc of all consumer sector bad debts despite making up only 23.2pc of the segment’s loan portfolio — translating into an infection ratio of 6.4 versus 4.2, respectively.

Multiple attempts have been made to address this problem. When the ‘Mera Pakistan Mera Ghar’ (MPMG) scheme was launched in 2020, it was designed as a broad, multi-tiered housing finance program to support both low- and middle-income buyers. It offered four tiers with loan sizes ranging from Rs2m to Rs10m and unit size limits extending up to 10 Marla (2,000 sq. ft) for Tier 3. Except for Tier 1, there was no price cap on housing units and customer pricing was differentiated by tier, which started at 3pc for Tier 1 and went up to 7–9pc for higher tiers, while banks were allowed varied spreads on top of Kibor [Karachi Interbank Offered Rate]. This structure gave borrowers not only some predictability on pricing but also flexibility across income segments, including access to upper-tier customers.

By June 2022, the scheme had been suspended amid economic and political uncertainty. But almost three and a half years later, it made a comeback under a new branding, albeit with some key changes. First, the end customer rates are cheaper and fixed at 5pc for the first 10 years. Second, the markup subsidy is to be provisioned in the federal budget instead of a refinancing facility by the central bank, due to the International Monetary Fund conditionalities.

Though these amendments may make the scheme more attractive to borrowers while still maintaining monetary prudence, the more important question is: how did the previous intervention fare? According to available numbers, MPMG received applications worth Rs514bn, of which Rs235bn was approved, and only Rs99bn were disbursed.

It was complemented by ‘Naya Pakistan Housing Program’, a supply-side intervention wherein the government assured to provide 5m houses. While the targets were quite ambitious, the reality fell well short, with only 21,980 low-cost units completed, about 52,000 under construction and 95,084 in the planning phase.

That’s where the biggest learning lies; while demand-side incentives are great at developing depth in the mortgage markets, home ownership in Pakistan is largely a supply problem as low-cost options are almost negligible in core urban centres.

Moreover, the lack of mass transit and infrastructure deters residents from moving to the more affordable options in the peripheries. Unless those are addressed, cheap loans will only go so far.

Mutaher Khan is co-founder of Data Darbar and Head of InsightLab at KSBL. Hasan Umair and Shahzaib Abbasi are analysts at InsightLab.

Published in Dawn, The Business and Finance Weekly, June 1st, 2026