Pakistan, like most parts of the world, has adopted capitalism, but its own capacity to generate domestic capital remains limited. Thus persistent dependence on foreign capital is a commonality across the state and non-state actors, including businesses and development agencies. In a world that is increasingly about economics such dependency results in subservience to foreign demands in all spheres of life-be economic, social or political. To explain constraints on the creation of domestic capital, we have used the well-known framework developed by Hernando De Soto in ‘Mystery of Capital’. De Soto points out that the key to the mystery of capital lies in a combination of ownership of a clean and clear title and elaborate man-made processes to convert that title into capital. We1,2 have further restricted the application of this framework for proposing a policy in the housing sector for the low-income market. There is substantial unmet demand for low-cost housing in Pakistan, if addressed; this market is potentially worth US$15 billion. We argue that market-based mechanisms work best to solve the housing problem for the poor and would relate it with current political and policy emphasis to provide housing by the state. It can be shown that the social present value on the investment in such a mechanism can at least be threefold.

Property Rights, as Hernando De Soto has extensively argued in ‘The Mystery of Capital’, hold the key to capital formation and creation of surplus value for the large majority of the population. De Soto points out that the key to the mystery of capital lies in a combination of ownership of a clean and clear title and elaborate man-made processes to convert that title into capital: collectively termed ‘property rights’. We have applied the framework of De Soto to understand the problem faced by the urban poor in terms of access to housing and have proposed a market-friendly policy framework to enhance access to housing.