Naya Pakistan Housing: Supply-side Snags

That the Naya Pakistan Housing Program (NPHP) is a haphazardly put together plan by the PM's team without any adequate research supporting it is well-acknowledged. That it is not for the low-income and poor populations of the country should also become clear (read more: “Naya Pakistan Housing: The lies we tell", May 21, 2020). While affordability is at the heart of the current housing crisis, let's also look at the supply-side of the situation—whether the program would yield enough supply in the market and the questions that ought to be raised now rather than later.

To first review: the PM announced a construction package last month, in part to spur construction industry and create much needed employment and in part to accelerate investment into NPHP. The package has a no-questions-asked policy on investment into real estate development. Taxes have been converted to fixed rates based on square footage, rather than properly value while an additional advantage exists for investments in NPHP where 90 percent of the taxes owed by the developers will be waived off.

Once developers run numbers, they will realize that the fixed tax regime itself is an incentive to build high-end properties, rather than low-cost ones. Since tax depends on size, rather than property price, expensive properties will incur lower tax burden. Though the 90 percent tax waive off is an added bonus for low-income housing, these projects will have to be built on a large scale to truly make them profitable while being low-cost. Builders would prefer to go the easy route of building developments where there is surefire demand, and certain profits. This is another nail in the coffin for NPHP proponents that want to see “affordable" housing being developed.

Secondly, there is a looming question on just how cities will grow from hereon. While PM Imran Khan has repeatedly tweeted about the importance of going vertical, there are no incentives for vertical development at all. In fact, BR Research conversations with various stakeholders suggest that most builders would prefer not to go vertical—they take longer, they are more complicated to build, and they are also more expensive to build.