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Housing Demand, Affordability and Mortgage Financing: A Case Study of Karachi

In: Sustainability and Financial Services in the Digital Age

Author

Listed:
  • Raza Ali Khan

    (NED University of Engineering and Technology)

  • Uneb Gazder

    (University of Bahrain)

Abstract

Karachi is the largest city of Pakistan amongst the mega metropolitan of the world. Since the independence of Pakistan, in 1947, the city has undergrown massive surge in population largely contributed by migration and urbanization. The amount of housing units present in Karachi is insufficient for the ever-growing population of the city and the housing units present are unaffordable to most of the public, especially the bottom 20% of the income group. The purpose of this study is to analyze the factors that contribute to the variation of local construction costs which in turn affect the affordability of housing units present in Karachi, evaluate affordability and mortgage repayment ability of different income groups present in the city and lastly, forecast housing demand for the city. To fulfill the objectives of this study, secondary data from House Building Finance Corporation (HBFC), Pakistan Bureau of Statistics (PBS), Household Integrated Economic Survey of Pakistan (HIES) was collected, and primary data was also collected from local construction contractors and house builders in Karachi. This data was used to determine construction rates in different localities of Karachi which is shown in the table below. The ARIMA methodology was used to find the future demand of housing in Karachi, as shown in the figure, and House Price to Income Ratio, Mortgage to Income Ratio and Residual Income Approach was used for the analysis of affordability. Housing demand was forecasted for the years 2017–2020 which clearly shows that the housing demand is increasing with respect to time, and the Mean Absolute Percentage Error (MAPE) was 2.07%. The analysis of affordability and mortgage repayment shows that the bottom 20% of income earners cannot afford a house or pay off their mortgages. Construction rates in different towns of Karachi Area Rates D. H. A 2200/ft2 Gulistan-e-Johar 1300/ft2 Gulshan-e-Iqbal, North Karachi & Safoora Goth 1600/ft2 Malir, Shah Faisal, Korangi, Landhi 1250/ft2 Trend line of original and forecasting housing demand A line graph compares the rising trends of the forecasted series and the original series. The trend started at 1500000 in 2000 and ended at almost 3500000 in 2015. The forecast for 2020 is 4000000.

Suggested Citation

  • Raza Ali Khan & Uneb Gazder, 2024. "Housing Demand, Affordability and Mortgage Financing: A Case Study of Karachi," Springer Proceedings in Business and Economics, in: Nadia Mansour & Lorenzo M. Bujosa Vadell (ed.), Sustainability and Financial Services in the Digital Age, pages 259-301, Springer.
    • Handle: RePEc:spr:prbchp:978-3-031-67511-9_16
    DOI: 10.1007/978-3-031-67511-9_16
    as

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