Pakistan Needs Nearly 10 Million Homes to Meet its Housing Needs: World Bank

According to a study conducted by the World Bank (WB) titled “Towards a More Nuanced Approach to Measuring Housing Affordability Evidence from Pakistan,” the country is currently facing a housing shortage of approximately 10 million units, with around half of this shortage concentrated in urban areas.

The study highlights that in urban regions, 47 percent of households reside in overcrowded housing units within informal settlements, known as “katchi abadis,” which lack adequate infrastructure and services.

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By utilizing data from the Pakistan Household Integrated Economic Survey (HIES) 2018-19, the study employed the Residual Expenditure Method (REM) to assess housing unaffordability for urban households across the country.

The findings indicate that roughly 25 percent of households struggle to cover their basic food, non-food, and non-housing expenses after accounting for housing costs. Amongst the poorest segment, this affordability challenge is particularly severe, affecting 94 percent of households.

In contrast, when applying the expenditure-to-income ratio (EIR) approach, it suggests that only 44 percent of households face unaffordable housing conditions. Notably, housing affordability is least favorable for the highest income quintile, with nearly 60 percent of households spending over 30 percent of their income on housing.

The REM approach highlights the necessity for a more accurate methodology to gain a nuanced understanding of affordability within Pakistan’s housing sector.

The REM assesses housing affordability by considering a household’s ability to meet their non-housing basic needs after allocating funds for housing expenses. By establishing a minimum threshold for non-housing expenditure, the REM method categorizes households as facing unaffordable housing conditions if they lack sufficient resources to fulfill these residual basic needs.

Since readily available budget standards are absent, poverty estimation techniques can be adapted to estimate a minimum standard for non-housing expenditure, including both food and non-food essentials.

In particular, the process used to determine the poverty line can be applied to establish a non-housing poverty line or a threshold for spending on residual non-housing needs. This threshold would encompass basic food requirements along with an additional provision for essential non-housing and non-food needs.