Abdul Rehman Niazi
Pakistan is grappling with an urgent and escalating national security issue—its explosive population growth. Over the past five decades, the population has surged from 65 million in 1972 to over 240 million in 2023, and is projected to surpass 400 million by 2050. This demographic surge is creating immense pressure on essential services such as water, food, energy, and housing. One of the most pressing consequences of this population boom is the growing housing crisis, particularly the need for affordable and climate-smart housing. The issue of housing is not just a matter of shelter but is intricately linked to social stability, economic progress, and environmental sustainability. Addressing it effectively requires urgent attention and innovative solutions.
The Housing Crisis in Pakistan: The Scale of the Problem
Pakistan’s housing demand is staggering. The country needs 350,000 new housing units annually, yet the supply falls far short, with only 150,000 units being constructed each year. This disparity has led to an urban housing backlog of over 9 million units. A significant portion of this backlog is concentrated in urban areas, where rapid rural-to-urban migration has put immense strain on the already overstretched housing infrastructure. Currently, 57% of Pakistan’s urban population lives in informal slums or shantytowns, according to the Asian Development Bank. As more people flock to cities, especially in light of the projected population growth, this problem is expected to worsen.
The lower-middle and middle-income brackets, which make up 78% of Pakistan’s population, are particularly hard hit by this crisis. The lack of affordable housing options has led to widespread displacement and impoverishment, while gentrification has driven the lower-income groups further out of the housing market. These conditions are ripe for social unrest, making the housing issue not just an economic one, but a potential trigger for instability.
Political and Economic Constraints
Despite the clear need for action, Pakistan’s housing policies have remained stagnant for decades. The country’s first housing policy was introduced in 2001, but it took nearly 55 years for the government to formulate one in the first place. This policy is now over two decades old, and while a new housing policy is in development, it is not expected to break from the past. Given the rapid demographic changes and increasing urbanization, the outdated approach will not be sufficient to address the current and future housing needs.
The allocation of funds for housing development has also been dismal. In the most recent budget, only 0.13% of the total Rs18.8 trillion budget was allocated to housing, with Rs24.3 billion set aside for housing development in the Public Sector Development Programme (PSDP) for 2024-2025. This amount is grossly inadequate, considering the vast scale of the housing deficit.
In addition to these policy and financial limitations, Pakistan faces another major challenge: the effects of climate change. Pakistan is highly vulnerable to climate-related disasters, including floods, rising sea levels, and extreme weather events. The country’s housing infrastructure is ill-equipped to handle these challenges, and the demand for climate-resilient housing is growing. Without integrating climate resilience into housing policies, Pakistan risks exacerbating its housing woes.
The Need for a Transformative Framework
To address these multifaceted challenges, Pakistan needs a transformative shift in its housing approach. A simple revision of outdated policies will not suffice. Instead, Pakistan must adopt a comprehensive, data-driven approach that prioritizes affordability, sustainability, and climate resilience. A new framework for affordable and climate-smart housing is urgently required—one that integrates innovation, private-sector collaboration, and sustainable financing mechanisms.
The proposed framework should include a clear focus on Public-Private Partnerships (PPP), where the state and private sector work together to create commercially viable solutions for affordable housing. The government must facilitate these collaborations by providing the necessary support, such as identifying unencumbered land for development, simplifying the process of obtaining land titles, and offering concessional leases or grants for housing projects outside urban centers. These efforts will ensure that projects can get off the ground quickly and effectively.
Pakistan’s state-owned banks and Development Finance Institutions (DFIs), which are currently focused on government securities and State-Owned Enterprises (SOEs), need to refocus on their core mandate: financing development projects. These institutions must be mandated to provide funding for affordable housing, with strict timelines for implementation. This can be achieved by channeling funds from multilateral lenders, who are willing to co-finance sustainable housing projects, and commercial banks, which can be incentivized to participate through partial risk guarantees and favorable loan conditions.
Moreover, the role of multilateral organizations and domestic banks in supporting housing development needs to be emphasized. Multilateral institutions can provide guarantees to domestic lenders, covering risks associated with financing affordable housing projects. This will help reduce the interest rates on loans, making it easier for low- and middle-income households to access home loans. It is also essential to adopt innovative financing models, such as green bonds and impact investing, to attract funding for climate-smart housing projects.
Innovative Financing Models: Drawing Lessons from Other Countries
Looking at international examples can provide valuable insights into how Pakistan can overcome its housing crisis. In Mexico, for example, climate-smart affordable mortgage schemes have been introduced, offering borrowers lower interest rates when purchasing or renovating homes that meet energy efficiency standards. Similarly, in South Africa, blended finance models have been used to bridge the financing gap for sustainable housing projects, enabling local banks to offer loans at lower rates. In Kenya, the government has promoted green bonds to attract institutional investors for affordable, environmentally friendly housing projects.
Brazil’s Minha Casa Minha Vida (MCMV) program provides a mixed model of government subsidies, low-interest loans, and private sector investment to build millions of homes for low- and middle-income families. This program demonstrates how public-private partnerships can effectively address the housing deficit while meeting the needs of the community.
India’s Pradhan Mantri Awas Yojana (PMAY) scheme, which provides financial assistance to low-income families for home construction or purchase, has also been highly successful. By promoting energy-efficient building practices and incorporating climate-smart features, India has significantly reduced its housing deficit while also advancing its environmental goals. Pakistan can learn from these examples and adapt them to its own context, leveraging international funding and innovative financing models to address its housing challenges.
Embracing Technology and Data-Driven Solutions
In addition to financing innovations, Pakistan must also embrace technology to address the challenges of housing affordability. Domestic lenders can use alternative data sources, such as geotagging, personal mobility data, and residence stability, to assess the creditworthiness of low-income households. This will allow banks to offer mortgage loans to individuals who may not have formal credit histories, expanding access to housing finance.
Moreover, the government should encourage the use of technology to improve construction efficiency and reduce costs. Modular housing, which uses prefabricated components that can be quickly assembled, offers a promising solution for affordable housing. Such methods can help reduce construction timelines and costs while ensuring that homes are built to be climate-resilient.
Conclusion: Turning the Housing Crisis into an Opportunity
Pakistan’s housing crisis is a multi-dimensional challenge that requires a comprehensive, forward-looking solution. By adopting innovative financing models, embracing climate-smart construction techniques, and leveraging technology, Pakistan can address its housing needs while fostering economic growth and climate resilience. The question is not whether Pakistan can afford to invest in affordable and resilient housing—it is whether it can afford not to.
To succeed, Pakistan needs strong political will and a whole-of-government approach to housing policy. The government must work in partnership with the private sector, international donors, and financial institutions to develop a robust, sustainable housing strategy. By doing so, Pakistan can turn its housing crisis into an opportunity—one that not only provides homes for its growing population but also builds a sustainable future for generations to come.
