Unpacking Housing Affordability in Developing Countries: A Focus on Spatial Heterogeneity in Lahore, Pakistan

Spatial heterogeneity in housing affordability is more pronounced in Lahore, Pakistan, than in cities in developed countries. Using online listing data, neighborhood-level geospatial information, and a large-sample geotagged household survey, we find that spatial sorting is inefficient across Lahore’s neighborhoods. Older, central neighborhoods with a high share of lower-cost housing are often occupied by middle- to higher-income residents, while many lower-income households reside in newer, suburban neighborhoods with higher-cost housing. Low-income, younger homeowners, in particular, tend to sort into higher-cost neighborhoods compared to older households with similar incomes. Our regression analysis shows that neighborhood housing quality is a stronger predictor of unaffordability than amenities, especially for lower-income and younger households. In other words, either voluntarily opting or being forced to choose neighborhoods with higher-quality housing leads to greater affordability challenges for these groups. Therefore, efficient within-neighborhood sorting—where lower-income households can access affordable housing—is vital for affordability in Lahore. However, such access is expected to be limited for younger, first-time homebuyers compared to older homeowners with longer-term residency. Our study highlights that a single measure of housing affordability can obscure distributional challenges in developing countries, where spatial sorting is less efficient.