​HOUSING DEMAND ACROSS INCOME GROUPS IN PAKISTAN

The research employs econometric models to assess how variables such as income, house prices, and demographic factors affect housing choices across low, middle, and high-income households.​Academia

Introduction

Housing demand plays a pivotal role in economic development, serving not only as a basic human need but also as a significant component of personal wealth and investment. In Pakistan, rapid urbanization and population growth have intensified the demand for housing, leading to challenges in affordability and accessibility, especially among low and middle-income groups. This study aims to empirically investigate how factors like income, house prices, and demographic characteristics influence housing demand across different income strata in Pakistan’s urban centers.

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Housing and Welfare Nexus

The relationship between housing and welfare is intricate, with adequate housing contributing to improved health, education, and overall well-being. In Pakistan, disparities in housing quality and accessibility reflect broader socio-economic inequalities, making it imperative to understand the determinants of housing demand to inform effective policy interventions.​

Housing Policy Orientation

Historically, Pakistan’s housing policies have focused on supply-side interventions, such as constructing public housing and providing plots for development. However, these measures have often fallen short of addressing the needs of low-income households, leading to the proliferation of informal settlements and inadequate housing conditions. A shift towards demand-side policies, including financial assistance and subsidies, is essential to enhance housing affordability and accessibility.​

Literature Review

The theoretical framework for analyzing housing demand encompasses several key concepts:​

• Hedonic Pricing Method: This approach assesses how various attributes of a house, such as location, size, and amenities, contribute to its price. By analyzing these factors, researchers can determine the value that consumers place on different housing characteristics.​

• Permanent Income Hypothesis: Proposed by Milton Friedman, this hypothesis suggests that individuals base their consumption decisions, including housing, on their long-term income expectations rather than current income. This implies that temporary income changes have less impact on long-term housing decisions.​

• Housing Demand Models: These models examine how factors like income, price, and demographics influence the quantity and quality of housing that households demand. Understanding these relationships is crucial for predicting housing market trends and formulating policies.​

Empirical studies in developing countries have shown that income and house prices significantly affect housing demand. For instance, research in countries like India and Nigeria indicates that higher incomes lead to increased demand for better-quality housing, while higher house prices can suppress demand.​

Methodology

The study utilizes data from the Pakistan Social and Living Standards Measurement (PSLM) survey. The methodology involves:​

• Permanent Income Estimation: Calculating permanent income by averaging past income data to smooth out temporary fluctuations, providing a more accurate measure of a household’s long-term financial status.​

• House Price Determination: Employing the Hedonic Pricing Method to estimate house prices based on characteristics such as size, location, and available amenities.​

• Housing Demand Analysis: Applying econometric models to assess how income, house prices, and demographic factors influence housing demand, with a focus on differences across income groups.​

Data

The PSLM survey provides comprehensive data on household income, housing characteristics, and demographic information across Pakistan’s urban areas. This rich dataset enables a detailed analysis of housing demand determinants and facilitates comparisons across different income groups.​Academia

Empirical Findings

The analysis reveals several key insights:​

• Tenure Choice Regression: Households with higher permanent incomes are more likely to own homes, while those with lower incomes tend to rent. This trend is consistent across all income groups, highlighting the influence of financial stability on homeownership decisions.​

• Housing Demand Regression: An increase in permanent income positively affects the demand for housing, leading to preferences for larger and better-quality homes. Conversely, higher house prices negatively impact housing demand, particularly among low-income households who are more price-sensitive.​Higher Education Commission

• Housing Demand Across Income Groups: The effect of income and house prices on housing demand varies notably across income groups. Low-income households exhibit higher sensitivity to price changes, often resulting in compromises on housing quality or size. In contrast, high-income households demonstrate a greater capacity to absorb price increases without significantly altering their housing consumption.​

Conclusions

The study underscores the critical role of income and house prices in shaping housing demand in Pakistan’s urban areas. It highlights the need for targeted policies that address the distinct challenges faced by different income groups. For low-income households, policies could include subsidies, affordable housing schemes, and access to low-interest financing to enhance affordability. For middle and high-income groups, measures that stabilize house prices and promote sustainable urban development can facilitate better housing outcomes.​

Policy Implications

To address the disparities in housing demand across income groups, the following policy recommendations are proposed:​

• Affordable Housing Programs: Implement schemes that provide financial assistance or subsidies to low-income households, enabling them to access adequate housing without overburdening their finances.​

• Housing Finance Accessibility: Develop financial products tailored to the needs of different income groups, such as microfinance options for low-income families and favorable mortgage terms for middle-income earners.​

• Regulatory Measures: Introduce policies that control speculative activities in the housing market, thereby stabilizing house prices and making housing more affordable across all income levels.​

• Infrastructure Development: Invest in urban infrastructure to expand the availability of affordable housing in well-connected areas, reducing the pressure on housing demand in city centers and promoting balanced urban growth.​

By implementing these strategies, policymakers can work towards a more equitable housing market that caters to the diverse needs of Pakistan’s urban population.​

Also Read: PAKISTAN – HOUSING DEMAND IN ISLAMABAD CAPITAL TERRITORY