Right to Adequate Housing

The relief package that was recently announced by the
Prime Minister for Pakistan’s construction industry would create
more wealth for the wealthy and deprive the poor of housing.

By Dr. Saqib Sharif | August 2020

Real estate is one of the most important sectors in any economy. Policy makers and financial regulators provide many incentives to both investors and borrowers in the real estate sector. The Pakistan Government has announced a big relief package for the construction sector and has given it the full-fledged status of an industry. Financial regulators should now engage with the private sector and financial actors to construct adequate housing for all sections of society in line with the ‘Sustainable Development Goals’ and the ‘New Urban Agenda’ . The financial regulators must tread a path between financialization of housing and the basic human right to adequate housing. The policy makers must ensure that the financial markets and institutions respond to the needs of residents for secure and affordable housing and do not cater only to high net-worth individuals.

In the recent past, it has been observed that financial regulators are not oblivious to a vibrant housing sector that would positively affect the socio-economic environment of the country, with a bigger involvement of the population economically, politically and socially. In 2014, the State Bank of Pakistan issued separate ‘Housing Finance Prudential Regulations’. The housing and construction sector is instrumental in poverty reduction and economic growth as it is labour intensive and has forward and backward linkages with more than forty industries, such as cement, steel, etc. The SBP’s regulations asked the banking institutions to develop a comprehensive housing finance policy in consultation with different stakeholders to create an enabling environment for enhancing the outreach. While going through these prudential regulations it appears that banks in Pakistan can only extend financing facilities to upper-middle or upper income strata of society.

However, with the passage of time, the policy makers realized the fact, in line with the New Urban Agenda, that a shift in paradigm away from prioritizing financial interests and the commodification of housing was the need of the hour to retrieve what housing meant in terms of human dignity and security. Therefore, a new circular was issued by the SBP in March 2019 that provided certain relaxations/exemptions in prudential regulations for low-cost housing finance. Under the new regulations, (a) banks had to maintain a Loan-to-Value ratio of 90:10; (b) banks were exempted from real estate sector exposure limit of 10%; and (c) banks were exempted from the general reserve requirement against the financing extended to low-cost housing. Overall, it can be assumed that financial regulators and policy makers started to realize that extending housing finance to the underserved was important as it was the basic right of every citizen in the country to have access to affordable housing and decent living. This is especially true for countries with no or low social protection benefits. But the realization of the right to adequate housing in the corridors of power is still far from over.

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