How renting makes housing affordable for the low-income demographic

How renting can help mitigate the housing crisis in Pakistan

How renting can help mitigate the housing crisis in Pakistan

Pakistan suffers from a large housing backlog of 10.3 million houses. There is a huge demand for housing that is responsible for the skyrocketing prices of residential real estate and housing. However, there is a misconception between the need and demand for housing or the capacity to choose preferred housing. Housing affordability in this context is the housing units that are affordable by that section of society whose income is below the median household income.

Several factors can contribute to the unaffordability of houses, like high land costs and building costs. Despite the involvement of the government to provide housing to low-income groups, the provision of affordable housing is a challenging task. Economists believe that housing affordability can be achieved by implementing land-use policies and business models that make it easier to develop affordable rentals. These policies can include revising zoning policies to allow for higher density residential development and lower-cost housing types.

Condition of homeownership versus renting in Pakistan.

According to the recent PSLM survey, an analysis of nationwide housing units shows that 86.6% of households have their own houses and 13.4% live in rented accommodations. The percentage of renters in rural areas is less than that of urban areas. According to research done on the housing characteristics and homeownership in Pakistan, the living conditions and the quality of houses are higher for people with ownership of their homes compared to people living in rented accommodations. This can be simply explained by the large friction between tenants and landlords. However, developed countries around the world are using renting accommodations to solve their housing problem. In European countries, the percentage of renting for housing purposes is higher, with Germany having 49% of its population living in rental accommodations. In addition, owing to higher house prices, more people are shifting to living in rented houses compared to owning a house.

Why is renting a house convenient compared to owning one?

House prices have increased exponentially in the last decade. In Europe alone, the prices of houses have increased by almost 10 times. A somewhat similar trend is observed in South Asian economies like Pakistan and India, where the rapid urbanization rate is adding to the cost of purchasing a house. Developing countries face the major brunt of inflation, especially in the real estate sector, due to the large low-income demographic of its people. In Pakistan, land prices and the cost of construction have skyrocketed, making housing extremely unaffordable for the common people. To curb this situation, the incumbent government introduced the Naya Pakistan Housing Program (NPHP). However, despite this government intervention to provide affordable housing, the crisis does not appear to be mitigating.

Under such circumstances, rental models of housing can be a useful tool to mitigate the housing crisis. To implement an effective rental housing model, especially for the low-income demographic, the government needs to revise land-use policies to allow higher-density residential development and lower-cost housing types. These include accessory dwellings and micro-units.

Revise land-use policies to make it easier to develop affordable rentals, including by revising zoning policies to allow for higher-density residential development and lower-cost housing types, such as accessory dwelling units and micro-units. This will increase the supply of low-income (but durable) houses in a region with rampant homelessness. Besides zoning, rent control can be used to bring down the cost of rent. Rent control policies can be used to a certain extent so that the tenant and landlord can reach mutually agreeable terms and conditions. At present Pakistan suffers from a severe housing crisis. This large and impending socio-economic issue can be solved using creative and innovative models of business.

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IMARAT Institute of Policy Studies

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