The Role of the Informal Sector in Provision of Urban Housing and Facilities

The formal sector in housing in Pakistan caters to less than 20 percent of the housing demand. Seventy two percent of this demand is for low and lower middle income housing. The major reason for this demand-supply gap is the lack of capability and capacity in the relevant government departments. In addition, their policies and procedures are incompatible with the sociology and economics of low income communities who constitute the bulk of the population that needs to be served.

This demand-supply gap is taken care of by the development of katchi abadis and informal settlements through the illegal subdivision and sale of government lands to low income communities and the informal subdivision of agricultural land. The house building process in these settlements is assisted by informal entrepreneurs and contractors who also provide credit for house building. Infrastructure is acquired through a process of lobbying government and politicians, giving bribes to relevant departments and through community self-help efforts. Education, health and employment facilities develop through the efforts of informal sector entrepreneurs and community organisations.

Much of this development carried out by the informal sector is substandard. Where it is supported by technical and managerial advice its quality improves and its lobbying process becomes more effective.

There have been a few government projects and attempts to regularize or replicate informal sector processes. However, in spite of many years of work, these projects have not grown to tackle the scale of the problem. It seems that the demand -supply gap in housing and infrastructure can only be bridged by accepting the informal sector and developing support mechanisms for it.

1. Definitions

1.1  Formal

Formal means that housing or related activity in which there is the involvement of government institutions or of private institutions and individuals that follow government regulations and seek government approval.

Formal sector actors involved in housing policy and delivery are the Federal Ministry of Planning and Development; the Environment and Urban Affairs Division (EUAD) of the Ministry of Housing and Works; the Provincial Physical Planning and Housing Departments; the Urban Development Authorities; Municipal Corporations/Towns Committees; Water and Sewage Agencies (WASA)/ Karachi Water and Sewage Board (KWSB); Cantonment Boards; individual builders and commercial banks that give loans for house building.

1.2 Informal

Informal means those processes that operate outside of government rules and regulations and sometimes in defiance of them. The actors include the employees and officials of various government agencies who misuse their power for financial benefits, middlemen (dallals), community organisations and informal sector entrepreneurs and money-lenders.

2.The Housing Demand – Formal Sector Supply Gap in Urban Pakistan

2.1  Statistics

Not even 20 percent of this demand is met by the formal sector. It is estimated that 72 percent of this demand is for low income and lower middle income housing. Again, the formal sector meets no more than 8 percent of this demand (1). Thus, the housing crisis in Pakistan can be overcome only if land and housing support systems can be made available to the lower and lower middle income groups.

2.2  Reasons for the Demand – Formal Sector Supply Gap

1. The Capacity and Capability of the Formal Sector is Limited:
   The formal sector does not have the capacity or capability to bridge the demand-supply gap. This is evident not only by the performance of the sector but by various government and non-government assessments. For example, the Seventh 5 Year Plan envisaged the development of 4.7 million housing units in the plan period 1989-93. However, calculations made for the plan showed that even an upgraded formal sector would not have the capacity of providing more than 1.35 million housing units during this period. This works out to an annual supply of about 270,000 housing units against a demand of over 875,000. The plan accepted that due to the increase in population and urbanization the demand-supply gap will continue to increase (2).
2. The Cost of Formal Sector Development is too High for Lower and Lower Middle Income Groups:
   The cost of formal sector development, even in cases of land delivery, is beyond the reach of lower and lower-middle income groups. As a result, a negligible number are able to purchase plots in schemes that are ostensibly meant for them. Most of the plots in these schemes are purchased by speculators and lie empty for years, tying up large sums of public sector investment.
3. Government Procedures for Land Allotment and Related Housing Support Systems are Inappropriate for Low Income Communities:
   Government procedures are complicated and involve catering to corruption. In addition, long delays (up to more than 10 years in some cases) take place in development of schemes even after payments and allotments. Also the relationship between officialdom in Pakistan and the poor is one of suspicion and hostility. Even where lower income groups can afford the cost of development, they are reluctant to approach government agencies.
   In addition, building a house in formal sector settlements requires the acquiring of a building permit, a completion certificate and the following of irrational building bye-laws. All these are deterrents to access to the formal sector by low income communities.
4. Credit is not available for Land purchase:
   Formal credit for housing is available only from the HBFC through mortgage financing against land. However, the vast majority of Pakistani households live in informal settlements where formal ownership documents do not exit. This excludes them from the credit facilities available with the HBFC. In addition, the HBFC procedures are long and cumbersome and are more easily available to the affluent and well placed. Thus, HBFC caters only to 19 percent of the formal housing market and does not cater at all to land purchase.
   The HBFC loans to individuals. It does not give loans to NGOs, cooperatives or agencies involved in housing. In addition, it does not give small short term loans such as for Rs 5,000 for a period of one year. These loans are the sort that low income families require to improve their houses.

3. The Informal Sector

3.1 Preamble

Over times the demand-formal sector supply gap in Pakistan is increasing both in percentage and absolute terms. This gap is met by the informal sector by the supply of land, house building support (technical and financial), development of infrastructure, and social sector facilities.

There are two types of informal housing settlements in Pakistan. One, are katchi abadis. These are settlements created on government land through unorganised invasions of these lands or their illegal sub-divisions. It is estimated that there are approximately 3 thousand such settlements in Pakistan having a population of 7 million (3). Two, are settlements that have been created by the informal sub-division of agricultural land, ecological unsafe areas or waste-lands on the city fringes. Conditions in these informal settlements are not dissimilar to those in katchi abadis. The population in these settlements is estimated at 12 million (4). Thus, 58 percent of Pakistan’s urban population lives in katchi abadis and informal settlements. The rate of growth of these settlements is about 10 percent against a total urban growth rate of 4.8 percent (5).

3.2 The Process of Land Delivery in Katchi Abadis

Upto the mid 50’s the vast majority of katchi abadis in Pakistan housed refugee from India. 46.3 percent of Pakistan’s urban population according to the 1951 Population Census was 46.3 percent of the total urban population of Pakistan. This is a fact that is very often overlooked when researching on the housing problem of the country. These katchi abadis were formed by urorganised invasions of government land and open spaces. They were unplanned and houses in them were no more than shacks made of mud construction and thatch.

Beginning in the mid 50’s, land became a commercial commodity and as a result there were large scale bulldozing of katchi abadis which were near the city centre or on prime land. It became difficult to invade and occupy government land. However, since there was a demand, there had to be a way out.

This situation led to the development of settlements created through the Illegal Sub Division (ISD) and sale of government land. This process was initiated by corrupt yet enterprising government officials. The main actor in this drama is the dallal or middleman. He identifies a piece of government land and occupies it with the support of officials of agencies who own that land, the local thana, municipal authorities, and where necessary politicians. He then subdivides this land and sells it to low income and lower middle income groups. The officials of the various agencies are given about 30 percent of the plots in these settlements for speculation purposes. Thus, the settlement is not only protected from bulldozing but it is in the interest of the officials of various important local agencies to see that it develops and acquires infrastructure and social facilities as this will raise the price of land. Sometimes officials have a share in the sale profits as well. The local thana collects money when a family moves onto its plot, when it constructs a boundary wall or when it builds a pucca roof. All this is in addition to the bribes that the house owner pays for acquiring electricity, gas and water.