Hi Everyone! Hope you are all doing well. Welcome back to another blog. Today we will talk about everything you need to know about Pakistan’s Housing Crisis. The World Bank (WB) has revealed that Pakistan is currently grappling with a severe housing shortage. With an estimated deficit of approximately 10 million units. Urban areas concentrate nearly half of the growing scarcity.
A study conducted by The Bank, titled “Towards a Better Method of Measuring Housing Affordability: Insights from Pakistan,”. It found that 47 percent of urban households in Pakistan live in overcrowded housing units. “Katchi Abadis” refers to informal settlements where these housing units are located. These settlements lack proper infrastructure and services, which poses significant challenges for the residents.
The researchers utilized the data gathered from the Pakistan Household Integrated Economic Survey (HIES) conducted in the year 2018-19. They used the REM (Residential Expenditure Model) technique. It helped estimate the level of housing unaffordability experienced by households in urban areas of the country.
According to research, approximately 25 percent of households struggle to cover essential expenses like food and other necessary items, excluding housing costs. Although, among these households, those with the lowest income face the greatest difficulty, with up to 94 percent experiencing affordability challenges.
The report presents an alternative perspective, stating that when applying the expenditure-to-income ratio (EIR) approach. It becomes evident that housing is deemed unaffordable for a relatively smaller proportion of households, specifically 44 percent. Furthermore, it highlights that the highest quintile faces the greatest challenges, as close to 60 percent of households within this group allocate more than 30 percent of their overall household income towards housing expenses.
The Residual Expenditure Method (REM) approach strongly emphasizes the pressing need for the development of a considerably more accurate and comprehensive methodology. As such an approach would facilitate a nuanced and in-depth understanding of affordability in the housing sector in Pakistan.
The RIM method evaluates housing affordability by actively considering a household’s capacity to fulfill its essential non-housing requirements after allocating funds for housing expenses. Also, it establishes a minimum standard for residual basic needs expenditure, categorizing households as experiencing unaffordable housing conditions if they lack adequate resources to meet these essential needs.
Additionally, In situations where readily available budget standards are lacking. It is possible to adapt poverty estimation techniques to derive an estimate for the minimum standard of expenditure on non-housing items, encompassing essential needs like food and other necessary expenses.
The process employed to determine the poverty line can also be applied to ascertain a poverty threshold for non-housing expenditures. This threshold encompasses fundamental food necessities, while also incorporating an extra allowance for essential non-housing and non-food requirements.
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