Pakistan Housing Roundtable “Innovations in Low-Income Housing”

Editor’s note: This post was written by Batool Hassan, with assistance from Aun Rahman

On Thursday, August 21, Acumen Fund Pakistan hosted a half day roundtable discussion on “Innovations in Low Income Housing: Local Challenges and Global Lessons.”

The roundtable convened a small group of 20 key stakeholders representing different areas within the housing development and housing finance sectors. Attendees discussed key challenges and issues facing low-income housing development in Pakistan. The roundtable also highlighted successful models locally and globally, key challenges to scale, and what steps are necessary at the private and public sector levels to facilitate on the ground movement in the affordable housing space.

The group included:
- Representatives from the State Bank of Pakistan
- Representatives from Sindh and Punjab government housing agencies
- Stakeholders from private banks and microfinance organizations
- Affordable housing developers, urban planners and architects

The event itself was an energizing and aspirational experience for the Acumen Fund Pakistan team – we have rarely before seen such a dedicated, informed, engaged, and impassioned group of individuals who sincerely have a stake in the low-income housing space in this country. The depth of knowledge and level of commitment to catalyze change in the sector was unparalleled.

In this day and time, with so much attention on housing for the poor, we came out of the meeting with an awareness and an understanding that we have a real chance to solve some substantial problems that are global in scale but with innovative local initiatives, we can genuinely tackle.

Within the two overarching themes of Housing Finance and Housing Development, there were some key emerging ideas, possibilities and learnings that were tangible take aways.

When addressing low income housing finance needs, while there are serious design challenges in affordable housing finance products (as articulated by Roshaneh Zafar and Nadeem Hussain) there is clear flexibility and innovation that is evident from what Kashf Home Improvement Loan Program is doing, what House Building and Finance Company (HBFC) is trying to regularize and scale, and what Tameer Microfinance Bank is embarking upon.

Two clear areas that pose a challenge to providing financial products to the base of the pyramid (BoP) are:
1. Asset-liability mismatch for financing products and
2. High cost of funds in raising commercial capital for a longer term housing portfolio.

The group also came away with an understanding that since the problem is so large scale, there is a need for multiple housing financing models that understand the BoP are not monolithic – that they have varying needs and varying preferences – while some may prefer a do-it-yourself housing development and therefore appropriate short-term funding, some families may prefer long term mortgages. The point is there should be flexible product options and we are conscious that one size does not fit all.

One point of agreement was that considering the high cost of capital, there is strong potential – at least in the current interest rate environment – for targeted interest rate subsidies to help capitalize housing finance earmarked specifically for low income housing.

We also discussed a proposal by the International Finance Corporation for a risk share facility between commercial banks and housing finance institutions to mitigate the risk of long term financing for this income segment. This is already a recommendation that has been made by the Housing Advisory Group of the State Bank of Pakistan

The group further discussed lessons that can be learned from global models, for example, ICICI Bank in India. ICICI formed a strategic partnership with Cashpor to address the issue of fund origination. It is a highly successful model, but the key learning was that the Central Bank was keen on advancing this so they required commercial banks to include a low income mortgage portion to their portfolio, providing opportunity for mortgage origination. As was suggested, requiring banks to earmark a portion of their portfolio for low-income housing finance may be a course that the State Bank of Pakistan should consider to catalyze innovative models around broadening access of low-income groups to housing finance.

On the Housing Development side, the need for developers interested in low income housing space was discussed. Profit margins do not need to verge around 150%; margins of 30% for this sector can suffice.

The challenges around developing low income housing include: clean title, land speculation, and the cost of construction.

Even if the cost of construction can be brought down, there is still a need for the provincial and city government to intervene and deliver infrastructure in the form of electricity, clean water, sanitation services, and social and health services at affordable rates; otherwise, these sparkling housing developments can become the next urban slum or ghetto.

The availability of land, either public or private, at affordable rates and with clear title remains one of the biggest bottlenecks for low-income housing, so one possible solution discussed was a land bank facility dedicated to low cost housing.

Finally, stamp duties and title registration fees are cost prohibitive for property development and is an area there should be tangible legal intervention from the provincial and city governments.
Next Steps

• The Roundtable provided a useful forum to promote communication, understanding, and brain-storming around innovative solutions. To carry the momentum further, it will be beneficial to create a small Action Working Group to flesh out the solutions discussed, which in turn will better inform government and regulatory bodies, as well as private sector players who are either working or interesting in the low-income housing space. Acumen Fund will take the lead in putting such a group together.
• With much attention on affordable housing initiatives by the government, the group was made aware of a government steering committee meeting on September 15, 2008 with the Prime Minister around affordable housing initiatives and there was representation at the meeting from the housing roundtable group.
• Finally, we will be providing a brief Roundtable Report synthesizing the key discussion points and recommendations made to be posted to the website shortly.

We have real potential to tackle the housing issues discussed and to develop sustainable and scalable solutions that create quality, secure and affordable housing for low-income groups. We want nothing more than to work with as a team to see how to take this initiative further.