Building Dreams on Solid Foundations

In 1959, newly self-governing Singapore found itself faced with a major housing crisis. Both government and private housing construction had failed to keep up with the number of immigrants the city-state had been drawing from China, India, Malaysia and other parts of Asia. Overcrowding was ubiquitous. Most immigrants lived in dense squatter towns that lacked proper sanitation.

The Singapore government responded to the challenge by creating the Housing Development Board (HDB). The objective was to rapidly increase the supply of homes for rent for the poor. By the middle of the sixties, HDB had housed 400,000 people – and this, according to a recent Bloomberg article, is why Singapore has one of the highest home ownership rates. Singapore now has one million HDB apartments and the vast majority of families live in these modestly sized high-rise housing estates built by the government.

Although this initiative by the Singapore government did help solve the housing crisis, it was the Home Ownership for the People Scheme, launched in 1964 with the objective of building subsidised flats, that actually laid the foundation for Singapore’s real estate success. Under the Scheme, the government built two- and three-bedroom apartments and sold them to lower-middle income citizens on a 99-year lease. Buyers were not allowed to resell the property for at least five years.

These apartments were built in neighbourhood clusters – miniature new towns with playgrounds, food centres and shops. The larger townships had a health clinic, a community centre and a library. The management of these estates was integrated into government policies and included everything from the design for Singapore’s mass transit system to racial integration. The early flats were Spartan – massive slab blocks up to 10 storeys high, with 12 flats per floor, accessed by open corridors running along the front of the building. Water and electricity were provided but no fittings other than a squat toilet and a shower in a tiny bathroom and a sink in the kitchen. However, they were clean, safe and most importantly, well maintained. Over the years HDB grew and the projects became more modern and sophisticated. HDB not only maintained the buildings and grounds, it periodically upgraded the estates with new elevators, walkways and facelifts. When buyers resold their properties, they could make substantial profits. Few would have thought that this public-sector affordable housing initiative would give Singaporeans a direct stake in their city-state’s prosperity and lead to a country with one of the highest rates of home ownership in the world – despite the fact that over 80% of the population live in government-built flats.

A cursory look at the package shows that the entire incentive package is targeted towards the affluent segments and ignores the objective of cost-effective housing for low-middle income families.

Affordable housing has always been a big public policy issue in Pakistan. It was recognised as a human right by the Universal Declaration of Human Rights and reaffirmed at the UN Habitat Conference in 1996 with the ‘Adequate Shelter for All’ slogan. Yet, the housing shortage in Pakistan is assessed by the World Bank to have reached approximately 10 million units.

Similar to other developing countries, rapid urbanisation in Pakistan has resulted in the growth of unorganised settlements (katchi abadis) in urban areas, adding pressure on low-income housing demand (Source: State Bank of Pakistan Report on Housing). Rapid urbanisation compounded by a fast growing population is pushing the demand for housing upwards at a staggering pace. The annual housing shortfall is estimated to be increasing by 350,000 to 400,000 units (equivalent to half of the number of houses constructed in Pakistan) every year. Many consider these estimates to be conservative, holding that the housing supply gap is much bigger than these assessments.

Sadly, the response of successive governments to the growing housing crisis has lacked substance. This is especially true when it comes to housing deficiency for low and middle-income families. Between the formation of the Pakistan Housing Authority (PHA) in 1999 (the first public sector initiative after the establishment of the House Building Finance Corporation in 1952 to provide loans for house construction) and the formation of the Naya Pakistan Housing and Development Authority (NAPHDA) by the incumbent government, none of the housing policy frameworks have ever focused on low-cost homes despite the fact that nearly 80% of the housing stock shortfall is attributed to lower and middle-income groups.

The new housing and construction policy is a significant improvement over the National Housing Policy of 2001, which declared housing to be a major pillar of the macro economy, and emphasised resource mobilisation, increasing land availability, providing incentives for developers and constructors and promoting research to make construction more cost-effective. It was a non-starter. The Prime Minister’s Housing Programme launched in 2008 aimed at building one million units for government employees, media workers and the public at affordable prices also fell through. In 2013, the government revised the 2001 National Housing Policy to shift the burden to the private sector.

The ambitious construction and house building package rolled out by the present government is generally touted as perhaps the best policy framework developed so far that is aimed at bridging the widening housing supply gap. The incentives offer generous fiscal, regulatory and monetary concessions to builders and developers. To kick-start demand, the package offers attractive mortgage rates to people who can afford to buy or build up to 10-marla standalone, independent units. However, a cursory look at the package shows that the entire incentive package is targeted towards the affluent segments and ignores the objective of cost-effective housing for low-middle income families.

Nevertheless, the construction package has kick-started activity in Pakistan’s real estate market with land prices pushing up to new levels as the affluent use the incentives to legalise what in common parlance is known as black money. Going forward, we may see house construction increasing as builders seek to take advantage of the increasing liquidity in the housing market. However, if the purpose of this initiative is to provide housing for all, we will have to wait until the government decides to give the low- and middle-income population a stake in its policy framework. For this to happen, it will have to follow the example of Singapore and tweak the policy in order to provide small two- and three-bedroom units in high-rise housing estates built on state land in urban and semi-urban areas on long-term leases and at affordable rents. Such estates could be developed through public investment and should be equipped with well-maintained education and health facilities along with playgrounds, community centres and local commercial areas.

In this regard, the government could seek to collaborate with the private sector in the form of Public Private Partnerships (PPP). In this model, the government could provide land as equity while the investors bear the construction costs in exchange for predefined returns on their investment. Such a model could provide a mix of low-cost housing cross-subsidised by returns from the sale of commercial property and high-end apartments for more affluent families. According to some developers, investors are willing to partner with the government if a proper policy framework is developed and banks agree to provide long-term financing at affordable rates. Some are even enthusiastic about undertaking such projects without government involvement as the housing gap offers them a big opportunity.

Without NAPHDA developing a policy framework for construction of commercially viable but affordable small apartments in new well-maintained ‘miniature’ towns with all the basic amenities, the vision of affordable housing for all will remain a pipedream at best.

Nasir Jamal is Chief Reporter, DAWN Lahore. nasirjamal65@gmail.com