Housing Demand in Developing Countries: A Case-study of Karachi in Pakistan

Abstract

This paper analyses the characteristics of housing demand in the formal and informal housing markets of a large metropolitan city (Karachi) in a developing country (Pakistan) with low per capita incomes. While results of earlier research are confirmed in the case of the formal housing market, the explanatory power of the conventional housing demand specification is very limited in the informal sector. This is attributed to the impact of outward remittances by migrants, imperfections in the housing credit market, the low level of provision of public goods and differences in housing preferences.

Explorations into the Characteristics, the Determinants of Production, and the Impact of Land Policies on the Informal Housing Sector in Alexandria, Egypt

“…Conditions under which housing is produced or consumed in developing countries are characterized by imperfections, while the market in developed countries is close to being competitive (Lodhi and Pasha, 1991). The imperfections are caused by differentials in the ease of access for households, classified by income, education, occupation, location, and access to land and credit markets (AERC, 1989), differentials that result in creating diverse fonns of tenure ranging from fonnal ownership to illegal squatting.…”

“…Second, rent to income ratios are usually higher for owners. And, finally, demand for housing is price inelastic (see, among others, Malpezzi andMayo, 1985, 1987;Struyk et al, 1990;Lodhi and Pasha, 1991).…”

“…Furthennore, these imperfections are caused by direct governmental intervention in the housing markets either by producing housing, or by fIXing housing prices--by means of rent control, for example--or by controlling output and prices of materials. Finally, these imperfections are caused by a considerable rigidity on the supply side of the market because of bottlenecks in the availability of inputs, such as developed land, construction materials and municipal services (Lodhi and Pasha, 1991).…”

“…However, this method generally works well for the formal segment of the housing market Lodhi and Pasha, 1991). In the case of the informal segment of the market, there is generally a problem of a limited number of observations (Lodh,i ,and Pasha, 1991).…”

“…Before the demand for housing can be estimated, it is necessary to estimate imputed rents of owner-occupied properties (Lodhi and Pasha, 1991). Leuw (1971) indicates that such rent can be based on owners' direct imputation (derived from direct estimation), or estimations from a hedonic rent equation (derived from observed rents for renters), or on capital value.…”