According to the World Bank, Pakistan’s housing shortfall is now estimated to be at 10 million units and rising, with around half of this shortage occurring in metropolitan areas.
The bank observed in a paper titled ‘Towards a More Nuanced Approach to Measuring focusing Affordability Evidence from Pakistan’ that 47 percent of households in urban areas live in overcrowded homes in informal settlements (katchi abadis) with inadequate infrastructure and amenities.
The Residual Expenditure Method (REM) was used to assess housing unaffordability for households in Pakistan’s metropolitan areas using data from the Pakistan Household Integrated Economic Survey (HIES) 2018-19.
According to the data, over 25% of households are unable to cover their basic food and non-food, non-housing expenses after accounting for housing prices, with the lowest sector suffering the greatest affordability difficulty (94%).
In contrast, the expenditure-to-income ratio (EIR) approach suggests that housing is unaffordable for only 44% of households and that housing is least affordable for the highest quintile, with nearly 60% of households spending more than 30% of their household income on housing.
The REM approach emphasizes the need for a much more precise technique to permit a nuanced understanding of affordability in Pakistan’s housing industry.
The RIM measures housing affordability by taking into consideration a household’s capacity to meet its fundamental non-housing needs after paying for housing. The RIM technique classifies households as confronting unaffordable housing conditions if they do not have adequate resources to cover these residual basic needs by establishing a minimum threshold of non-housing expenditure.
Poverty estimation approaches can be extended to estimate a minimum standard for non-housing (food and non-food) expenditure in the absence of publicly available budget standards.
The process used to estimate the poverty line, in particular, can also be used to determine a non-housing poverty line – or a threshold for spending on non-housing residual requirements. This includes basic food needs, as well as provisions for fundamental non-housing and non-food needs.