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

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