House Price to Income Ratio in Pakistan
House price to income ratio is a measure which shows the house affordability level of a city, country or region. High house price to income ratio is the sign of an unaffordable housing market, whereas low house price to income ratio is the sign of an affordable housing market. In this blog we will discuss the house price to income ratio in Pakistan.
How house price to income ratio is calculated?
House price to income ratio is determined by calculating the total number of annual incomes required to buy a home. For example average house price is $100,000 and average annual income is $20,000. So house price to income ratio is 1:5 as people have to pay 5 years income to buy a house. This simple formula is used worldwide to calculate the mortgage affordability.
What is an affordable house price to income ratio?
When house price to income ratio is 1:5, it is considered as the affordable housing market. Most banks will only lend money to the people who can buy homes by spending 5 years of their incomes. If the house price to income ratio is above 1:5 then the housing market is unaffordable and when ratio is less than 1:5 then housing market is considered as very affordable or highly affordable.
House price to income ratio in Pakistan
According to NUMBEO house price to income ratio in Pakistan is 1:11. In other words, Pakistanis can buy homes after paying the 11 years income. This is very high ratio that shows that Pakistani housing market is very expensive. By comparing the house price to income ratio of Pakistan with other countries, we will find that Pakistani housing market is overheated as the ratio in UK is 8:1 and in USA 7:1.
Why housing is so expensive in Pakistan?
There are two main reasons of high house prices in Pakistan. Firstly Pakistan is facing the severe shortage of housing. We are building just 150,000 new houses every year where as our requirement is 1 million units. Secondly Pakistan reality sector was used to park the black money. The huge investment into reality sector has abnormally increased the house prices.
Disadvantages of high house price
There are many disadvantages of high house price. Firstly high house price decreases the home ownership. Secondly people can’t rent a decent home. Thirdly high house price decreases the incomes of realtors due to the low volume of real estate transactions. Fourthly high house price also reduces the profit margins of real estate developers.
Making Pakistani housing affordable
House price to income ratio in Pakistan can be controlled in three ways. Firstly we need to increase the average salary in Pakistan to increase the buying power of common people. Secondly houses can be made affordable by blocking the influx of black money into reality sector. The new tax reforms by government have resulted in reducing the property prices. Thirdly house price to income ratio can be decreased by building more affordable housing units or affordable homes in Pakistan.