Case Study: Housing, Poverty and Climate Change in Urban Pakistan

Over the past half-century, Pakistan has undergone rapid urbanisation, presenting a wealth of economic opportunities but also significant challenges in sustainable urban development, particularly against a backdrop of government resource constraints and intensifying environmental degradation. The crises of housing and climate change are inextricably intertwined with these challenges.

Pakistan’s Housing Landscape

Take, for example, the housing landscape. A significant portion of Pakistan’s population cannot afford housing due to widespread poverty and inaccessible financing. With an average urban household income of PKR 45,000 (approximately US$160) monthly, many families fall below the internationally accepted poverty level. This financial strain leads to an estimated 46% of urban dwellers living in katchi abadis, or informal settlements, lacking access to public services, infrastructure, and social facilities. This lack of affordable housing options is reflected in a national deficit of at least 10 million homes, growing annually by an estimated 340,000 units.

The available housing development is primarily led by developers who provide serviced plots, while customers are responsible for housing construction. However, these serviced plots often remain unused for years as they are seen as safe medium-term investments due to the lack of access for the majority to formal banking systems. This process leads to unused land, inflated land prices, sprawling cities, and unplanned informal development. The formal housing sector caters to less than 20% of housing demand (much of which is directed at the top 5% of the income pyramid), further exacerbated by a lack of institutional coordination across land registry, planning, approvals and services. Without proper land-use planning or implementation, expanding urban centres continue to swallow valuable agricultural land and damage the cities’ ecology. This type of unchecked city expansion will inevitably lead to greater and more frequent environmental hazards in the future.

 

The Challenges

Affordable housing sector challenges across many countries are similar to that of Pakistan and are experienced to some extent. Supply-side issues can include a shortage of viable projects, limited availability of land in suitable locations with proper ownership documentation, inadequate land records, ineffective policies and regulations, insufficient incentives for developers, limited competition in the market, complex approval systems, lack of financing options for developers, inconsistent enforcement and application of regulatory compliance, inadequate adherence to standards and a lack of infrastructure. On the demand side, major obstacles include limited access to mortgage finance for lower-income individuals and those who work in the informal sector, as they lack formal credit histories, stable incomes and the large down payments traditional banks require. Furthermore, a lack of diverse financial products and suitable tenure options contributes to a weak market. Initiatives such as shared ownership, rent-to-buy schemes, and formalised rental arrangements require robust regulatory frameworks, but these have been implemented sparingly, and ongoing monitoring has been substandard.

 

The Opportunity

The housing deficit in South Asia represents a staggering 3.4 trillion US dollars. While the scale of demand creates enormous market and impact potential, realising this opportunity is often inhibited by political and economic instability and systemic market bottlenecks on both the supply and demand sides. Despite the challenges, t in an attempt to realise the social impact and simultaneously tap into the economic benefits, India and Pakistan’s recent governments have implemented ambitious mass affordable housing programs (PMAYU and NPHP). Both have seen tangible progress in enabling the market and unlocking private-sector financing. Although India has had greater sustainable success in addressing the housing crisis while Pakistan was curtailed due to serious political instability and the worst humanitarian disaster it has experienced in 100 years. 33% of the land in Pakistan was catastrophically flooded, leaving 2 million people without homes.

 

Nonetheless, Pakistan’s real estate market is a prominent and rapidly expanding sector within the economy. It plays a significant role in driving economic growth, demonstrating resilience even in the face of declining foreign direct investment and limited infrastructure spending. Assets within the real estate sector contribute substantially, accounting for approximately 60-70% of the country’s total wealth. According to estimates by the World Bank, this amounts to roughly USD 300-400 billion. The State Bank of Pakistan (SBP) reports that the construction sector contributes approximately 2% to the country’s GDP, amounting to an estimated value of PKR 5.2 trillion (USD 32 billion) in 2021. Housing represents just less than half of those figures, but with such high urbanisation rates and population growth, it remains one of the strongest sectors to invest in demonstrating consistent growth over more than a decade, with much room to influence from a sustainability standpoint.

 

Housing Finance

Altair’s Expertise

Through its in-house consultants, Altair has made a significant impact on Pakistan’s housing supply chain successfully using cross-subsidy financial models to deliver over 3000 EDGE-certified affordable homes in major Pakistani cities. In partnership with Modulus Tech, they have also pioneered Pakistan’s first carbon-zero affordable homes and have played a leadership role in establishing Trellis Housing Finance Ltd, the country’s first non-banking housing finance company, enabling mortgage access for lower-income segments, including the unbanked and informally employed individuals. Recognising the importance of diverse tenure options for a healthy housing ecosystem, Altair’s regional housing expert, Emma Ahmed developed Pakistan’s first professionally managed affordable rental housing for women students and young women professionals in Lahore which has consistently maintained a 93% occupancy rate.

The housing challenges faced by Pakistan represent broader issues faced in many regions of the world, one that Altair has been instrumental in addressing. For instance, Altair’s work in Kenya is creating a rent-to-buy model tailored to low-income earners. In Burkina Faso, Altair has taken the lead in assessing the feasibility of affordable rental housing benchmarking, offering global case studies and advice on adapting rental models to the local context. Similarly, Altair is developing financial and social business models in the Dominican Republic to revitalise heritage buildings, attracting low-income renters and rejuvenating the historic colonial city centre.

As this case study demonstrates, Altair’s valuable experience in Pakistan can serve as a blueprint for other countries grappling with similar affordable housing challenges, paving the way for more inclusive and sustainable housing ecosystems worldwide.

To discuss the content of this article further, contact Emma Ahmed.