Pakistan’s housing shortage is currently estimated at approximately 10 million units and growing with about half of this shortage occurring in urban areas, says the World Bank (WB).

The Bank in a study “Towards a More Nuanced Approach to Measuring Housing Affordability Evidence from Pakistan”, noted that in urban areas, 47 percent of households live in over-crowded housing units in informal settlements (katchi abadis) with inadequate infrastructure and services.

Using data from the Pakistan Household Integrated Economic Survey (HIES) 2018-19, the REM was used to estimate housing unaffordability for households in urban parts of the country.

The findings suggest that approximately 25 percent of households are unable to cover their basic food and non-food, non-housing expenses after accounting for housing costs, with the poorest segment facing the highest affordability challenge (94 percent).

It further stated that in contrast, the expenditure-to-income ratio (EIR) approach suggests that housing is unaffordable for only 44 percent of households and that housing is least affordable for the highest quintile, with close to 60 percent of households spending more than 30 percent of their household income on housing.

The Residual Expenditure Method (REM) approach highlights the need for a much more accurate methodology to facilitate a nuanced understanding of affordability in the housing sector in Pakistan.

The RIM measures housing affordability by accounting for a household’s ability to meet its non-housing basic needs after paying for housing. By establishing a minimum threshold of non-housing expenditure, the RIM method classifies households as facing unaffordable housing conditions if they do not have enough resources to meet these residual basic needs.

In the absence of readily available budget standards, poverty estimation techniques can be adapted to estimate a minimum standard for non-housing (food and non-food) expenditure.

In particular, the process followed for determining the poverty line can also be used to determine a non-housing poverty line – or a threshold for spending on non-housing residual needs. This consists of basic food needs to which a provision is added for basic non-housing and non-food needs.

Source: Pro Pakistani