Arslan Ahmad
WHEN the federal cabinet formally approved the National Housing Policy, it marked a rare and necessary acknowledgment of a structural fault line that has been widening for decades. Pakistan’s housing deficit is no longer a peripheral urban headache; it has matured into a full-blown economic and social crisis. Yet, even as the government aggressively expands credit facilities and champions state-backed initiatives, a more fundamental question remains unaddressed: Are our financial institutions financing the creation of new homes or are they merely bankrolling the purchase and trading of homes that already exist?
This is not a semantic distinction. It goes to the very heart of why billions of rupees in state interventions historically yield such dismal returns. Pakistan’s housing crisis is fundamentally a supply-side catastrophe. For years, public policy has operated under the persistent illusion that expanding consumer mortgage lending would somehow automatically build roofs. It has not. Instead, it has driven the formal financial system to service the transfer of existing property assets, fueling real estate speculation while leaving the structural brick-and-mortar deficit entirely untouched.
The empirical data exposes a massive mathematical mismatch. Pakistan’s accumulated housing shortfall has escalated to an estimated 10 to 12 million units, compounded by demographic growth and rapid urbanization. While the country requires roughly one million new homes annually to meet basic demand, formal supply falls short by nearly 70 percent, delivering barely 300,000 units. The consequences are stark. Blocked from formal housing avenues, low- and middle-income families are forced into informal, substandard settlements. Today, over 50 percent of the population in major urban centres like Karachi and Lahore lives in underserved, precarious environments.
The limits of a purely demand-focused strategy were exposed when the World Bank downgraded Punjab’s $200 million Affordable Housing Programme to “Moderately Unsatisfactory.” Despite institutional adjustments, the programme failed to deliver its targeted housing units, prompting a shift towards a beneficiary-led construction model. The lesson is clear: individual mortgages, while necessary, cannot fix a broken supply chain alone. In Pakistan, where the mortgage-to-GDP ratio is just 0.25 percent, commercial banks remain wary of developer risk due to fragmented land titles, litigation and weak regulatory oversight.
To truly move the needle, the state must pivot its financial architecture. Consumer lending must be complemented by bulk housing finance and large-scale project finance. Commercial banks and financial institutions should finance viable, large-scale developers. This approach offers several structural advantages. Bulk construction creates economies of scale, lowering construction costs and making infrastructure more affordable. It also enables milestone-based risk management, allowing banks to link capital disbursement to transparent, verified construction phases rather than monitoring thousands of fragmented consumer loans. Finally, cooperative housing models can bridge the gap by linking developers, banks and public-private platforms through automated, payroll-based repayment mechanisms.
Crucially, the state must rethink how it tracks performance. Measuring the success of a national housing policy by the total volume of credit disbursed creates an artificial triumph. If a Rs. 10 million bank loan merely transfers an existing house from one elite investor to another, it does absolutely nothing to shelter a working-class family.
A new national indicator must be established: How many new housing units were actually built through formal housing finance? This single metric would forcefully shift the regulatory focus from the movement of capital to real economic output. Pakistan does not simply need more home buyers; it desperately needs more homes. Until our financial policies learn to finance the construction of the future rather than the trading of the past, the country’s housing deficit will remain a permanent, destabilizing crisis.
—The writer is contributing columnist.
