Pakistan’s Housing Boom and Economic Growth

Housing construction is one of the largest sectors of most major economies in the world. In the United States, for example, housing is a significant contributor to the American economy, providing millions of Americans with jobs and generating hundreds of billions of dollars of economic output each year. It is also an important source of wealth building. Beyond economic measures, homeownership and adequate rental housing also contributes to society.

The construction and sale of new homes make direct contribution to GDP, based on the value of the housing built. However, the sales of existing homes do not enter into the calculation of the nation’s domestic output, just as a used car sales do not get entered because the transaction does not represent a new production. However, purchases related to the transaction of existing home sale do get included in the GDP. For example, all payments for services rendered, such as real estate agent commissions, home inspection, attorney, and loan origination fees, are included.

Currently, Pakistan has a serious housing crisis and needs about 7 million additional housing units now, according to the data presented at the World Bank Regional Conference on Housing last year.

According to BMI research, the country’s real estate sector continues to be dominated by the two major issues of a chronic shortage of housing against a backdrop of rapid urbanization and rising population and the impact of security factors on the risk appetite of investors and developers.

The first of these factors remains as intractable as ever, with the most recent estimates identifying shortfall of 7.9mn houses. By contrast, the current government is committed to building just 1 million houses. Other estimates paint a similar picture with the Punjab province, with a population of 82 million, said to be facing a shortage of 5 million houses. By some accounts, nationally there is an incremental demand for 700,000 units a year against the annual construction of just 150,000 units.

As to the second factor, the major projects currently moving forward are being executed by risk-tolerant developers from regions such as the Gulf Cooperation Council(GCC) and government or government-linked landowners in Pakistan. This has significantly reduced the scope to provide housing at the level required to supply the backlog. Recently, however, there are reports that Malaysian developers are coming to Pakistan, according to Malaysian news agency Bernama in August 2009. The Malaysian developers are negotiating to build some 500,000 low-cost houses annually in various parts of Pakistan.

The recent Dubai debt crisis will likely hurt some Pakistani workers in the Gulf region. However, the flip side of Dubai troubles is that many of these Gulf developers will look at Pakistan where real estate investments have always been winners, regardless of the political or economic environment. The supply has continued to lag demand for housing, retail and office properties.

The Gulf and Malaysian investments in housing can potentially help resuscitate Pakistan’s currently moribund economy by creating millions of new jobs directly and indirectly. Construction is one of the most labor intensive economic activity requiring large numbers of workers, creating hundreds of thousands of jobs. And when the buyers move in, they will demand all kinds of products and services to furnish their homes, thereby creating further employment opportunities. All of this is offers a great recipe for reigniting economic growth and renewed prosperity in Pakistan.

A new wave of housing construction offers an opportunity to the PPP leadership to live up to at least one of their election promises included in their “roti, kapda and makaan” platform. Looking back at the history of the political platforms that have succeeded, what comes to mind is the name of President Franklin Roosevelt and his “New Deal” , as well as the successive US Presidents’ policies on “The American Dream” of home ownership for all. These policies helped reduce poverty and enhanced education and housing for a large number of people in the US. New housing construction can also help reduce poverty in Pakistan.

Related Links:

Food, Clothing and Shelter in India, Pakistan

Pakistan Real Estate Report Q4 2009

Dubai Debt Crisis

Food, Clothing and Shelter For All

What Does Pakistani Democracy Deliver?

Urbanization in Pakistan Highest in South Asia

Housing: Global and Local Perspectives

Uncle Sam Saves Fannie and Freddie

Pakistan Attracts FDI Despite Security Concerns

Witness a Failed State: Try Pakistan’s M2

Doing Business Rankings of Countries

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